TALF'd CMBS Bonds

TALF - The Alien Life Form

TALF's biggest problem is related to the actual mechanics of TALF rather than the collateral being purchased by investors. On top of the hyperamortizing structures, the process to get set up, and tighter spreads today, you also have to buy the bonds from a dealer before you know if they'll be eligible. Four bonds, which met all the initial eligibility requirements, have been rejected since July, leaving those investors with a bond that is substantially price impaired (because everyone now knows it is not TALFable) and a repo line from a Street firm that needs to be unwound.

Also, full disclosure, this data is compiled from a few sources (all as of October 2009, so they differ some from the date the buyers requested TALF loans) and likely has some errors, but it is the same data the Fed is looking at and thus should be enlightening as to their process. The Fed has outsourced some of the valuation to third parties, who utilize models, and may have cleaner data. We adjusted for this by using a loan-level model from one of the top Street firms and producing the percentile result of the deals (where a lower number is better, and represents a lower overall default rate compared to the other deals)- we didn't name the firm because frankly we believe most of the models have very little value, but it is a data point, nonetheless. Also, we only had data for 2006/2007/2008 transactions for their model, so a lot of these have NAs.

It turns out, none of the metrics below, even taken together, explain the Fed's logic. Let me know if you have thoughts as to what form of logic is being used.

So, let's look at the rejected bonds first. The first three listed below are from August, and the last one is from July. These are labeled, throughout this post, in red, to distinguish them

Bond Name	C/E	WAL	60+ Delq. (%)	Spec. Serv. (%)	Partial IO (%)	WAVG DSCR	Street Model Rank
GSMS 2006-GG8 A4	30.23	6.73	9.86	0.77	43.32	1.44	87%
BSCMS 2007-PW16 A4	30.23	7.42	2.90	0.00	40.90	1.50	53%
JPMCC 2007-LDPX A2S	30.18	2.25	3.37	8.19	11.35	1.65	96%
JPMCC 2005-LDP3 A4A	20.67	5.66	5.58	3.14	39.54	1.72	NA

All four bonds had a top property type of Office (from 29% to 54% of the pool), and had the second highest concentration in Retail (from 20%-27%). Both sectors are concerning, but there were similar bonds with high concentrations that were accepted - In fact, GG9 and GG10 both had bonds accepted with an Office concentration of 60% and 63%, respectively, and they are not alone. Retail is even more surprising with 48 bonds (27% of the total requests through September) accepted that had exposures greater than 27%, with the top being LBUBS 2004-C2 A4 with an astonishing 48% UNANCHORED Retail exposure.

You also see some disconcerting numbers in the table above:
Credit Enhancement is above the highest level for the respective vintages. In fact, there are several <20% style="font-weight: bold;">60+ Day Delinquencies are high for each of the rejected bonds ranging from 2.25% to 7.42%, and they average slightly higher than the accepted bonds average of 3.32% (although the ranges are in line in both categories.

Special Serviced assets as a percentage of total loans seems high for two of the rejected bonds, but it is actually substantially smaller than the typical 2006 and later-vintage deals (approaching 20% and more) and the average rejected bond percentage of 3.02% is substantially higher than the accepted bonds average of 4.14%. There were 30 bonds accepted (16.5% of all requests) that had a higher percentage of loans in special servicing the highest percentage in the rejected list.

Partial IO percentage is 40% or higher for three of the four bonds. Most of these have or will roll to Amortizing payments before the end of 2012, and the average increase in debt service is around 18%. This is one of our biggest concerns (scroll to the bottom of the link for a chart) in the CMBS market. However, the accepted bonds have an average Partial IO Percentage of 39.21%, and many have higher exposures than the rejected list of bonds.

DSCR is about the same regardless of whether the bonds were rejected (1.58x average) or accepted (1.59x average).

The Street Model is a little more telling as these bonds fall in the bottom half of the model results, ranging from 53% to 96%. The JPMCC 2007-LDPX A2S is the 96% (although there are 7 accepted bonds that are worse according to the model), and with good reason - it has Maguire (the person, not the REIT) exposure with Solana, which he has requested debt relief on already, GGP exposure, Inland Empire office, and it is 100% 5-year loans rather than the typical 10-year loan found in CMBS.

Accepted Bonds:

Bond Name	C/E	WAL	60+ Delq. (%)	Spec. Serv. (%)	Partial IO (%)	WAVG DSCR
GCCFC 2005-GG3 A2	22.15	0.14	1.55	18.49	42.25	1.68
GCCFC 2005-GG3 A3	22.15	1.94	1.55	18.49	42.25	1.68
GCCFC 2005-GG3 A3	22.15	1.94	1.55	18.49	42.25	1.68
COMM 2005-LP5 A4	25.56	5.28	0.25	16.58	34.90	1.71
GECMC 2005-C1 A5	21.29	5.11	4.60	14.29	29.60	1.86
MLMT 2004-KEY2 A4	16.82	4.74	6.21	14.05	22.48	1.48
MLMT 2004-KEY2 A4	16.82	4.74	6.21	14.05	22.48	1.48
GECMC 2005-C4 A4	30.79	5.85	3.61	12.22	44.98	1.72
JPMCC 2005-LDP1 A4	21.05	5.13	1.20	11.98	26.02	1.69
MLMT 2005-CIP1 A2	30.96	0.71	3.25	10.76	37.68	1.66
CSFB 2005-C2 A4	32.02	5.23	12.44	9.76	58.17	1.40
CSFB 2005-C2 A4	32.02	5.23	12.44	9.76	58.17	1.40
CSFB 2005-C2 A3	32.02	2.11	12.44	9.76	58.17	1.40
CSFB 2005-C1 A4	22.52	4.98	5.46	8.81	40.09	1.67
BSCMS 2005-PW10 A4	31.18	5.84	2.15	8.79	45.97	1.45
BACM 2005-3 A3A	30.86	2.39	2.14	8.50	29.71	1.79
CSFB 2005-C3 A4	31.16	5.37	5.19	7.18	43.73	1.71
CGCMT 2004-C1 A3	18.69	1.66	2.01	7.17	31.14	1.62
WBCMT 2003-C9 A4	21.46	3.89	2.01	6.81	16.07	1.71
GCCFC 2005-GG5 A2	30.64	0.83	2.62	6.53	48.19	1.61
GCCFC 2005-GG5 A3	30.64	1.69	2.62	6.53	48.19	1.61
GCCFC 2005-GG5 A2	30.64	0.83	2.62	6.53	48.19	1.61
BACM 2004-4 A4	16.44	1.62	4.88	6.44	26.34	2.26
BACM 2004-4 A6	16.44	4.48	4.88	6.44	26.34	2.26
BACM 2005-6 A4	30.83	5.87	2.45	6.36	38.52	1.93
BACM 2005-6 A4	30.83	5.87	2.45	6.36	38.52	1.93
LBUBS 2004-C2 A4	18.07	4.23	2.24	6.08	34.30	2.28
WBCMT 2005-C22 A4	30.46	5.94	3.55	5.70	53.76	1.70
JPMCC 2004-CBX A5	22.87	2.59	1.44	5.34	24.08	1.56
JPMCC 2005-LDP5 A4	30.58	5.84	0.90	5.00	41.31	1.93
JPMCC 2005-LDP5 A4	30.58	5.84	0.90	5.00	41.31	1.93
JPMCC 2005-LDP5 A4	30.58	5.84	0.90	5.00	41.31	1.93
BACM 2005-2 A4	35.93	2.34	0.00	4.49	20.56	1.84
BSCMS 2005-PWR9 A4A	20.92	5.67	7.20	2.74	43.62	1.55
JPMCC 2005-CB13 A2	31.21	0.96	2.37	2.41	40.97	1.51
JPMCC 2005-CB13 A4	31.21	5.84	2.37	2.41	40.97	1.51
BACM 2005-5 A4	31.67	5.76	2.50	2.34	40.61	1.77
BACM 2005-5 A4	31.67	5.76	2.50	2.34	40.61	1.77
LBUBS 2005-C3 A5	31.87	5.40	2.75	2.11	26.88	1.54
BACM 2004-1 A4	17.99	3.99	2.29	1.83	44.94	2.19
WBCMT 2004-C12 A4	15.36	4.43	0.15	1.31	37.66	1.81
JPMCC 2005-LDP4 A2	31.72	0.70	2.12	1.29	39.72	1.64
LBUBS 2005-C2 A4	22.44	2.38	2.36	1.27	27.50	1.55
LBUBS 2005-C2 A4	22.44	2.38	2.36	1.27	27.50	1.55
MSC 2003-IQ4 A2	17.16	3.14	0.55	1.15	33.20	1.80
COMM 2005-C6 A5A	20.19	5.63	6.30	1.09	43.27	1.69
GSMS 2005-GG4 A4A	20.79	5.35	2.23	0.94	52.15	1.65
GSMS 2005-GG4 A4A	20.79	5.35	2.23	0.94	52.15	1.65
JPMCC 2004-CB8 A1A	15.47	3.65	1.26	0.77	40.83	1.78
JPMCC 2004-CB8 A1A	15.47	3.65	1.26	0.77	40.83	1.78
JPMCC 2004-C1 A3	17.05	4.06	0.19	0.59	34.77	1.79
MSC 2005-HQ5 A4	22.00	4.89	1.64	0.51	32.38	1.97
JPMCC 2005-LDP2 A3	31.06	2.63	2.72	0.51	39.81	1.64
JPMCC 2003-CB7 A4	16.30	3.65	4.66	0.50	26.96	1.79
COMM 2004-LB2A A4	17.69	4.13	5.26	0.41	53.39	2.07
MSC 2005-HQ7 A2	31.54	2.62	2.25	0.23	33.86	1.58
JPMCC 2005-CB12 A4	31.60	5.52	5.04	0.20	45.89	1.73
BSCMS 2005-T20 A2	17.91	0.76	0.06	0.06	21.78	2.07
MLMT 2005-CKI1 A6	31.13	5.76	2.91	0.00	43.67	1.73
WBCMT 2005-C19 A3	30.90	1.05	0.00	0.00	18.81	1.94
MLMT 2003-KEY1 A3	15.67	1.56	0.00	0.00	48.36	1.84
GCCFC 2004-GG1 A7	17.87	4.09	7.93	0.00	44.64	1.91
MSC 2004-T13 A4	15.53	3.99	0.00	0.00	26.55	2.37
BSCMS 2004-PWR4 A3	12.88	4.42	0.00	0.00	48.92	2.15
CSFB 2005-C5 A3	30.84	3.09	0.77	0.00	62.75	1.83
CSFB 2005-C6 A2FX	31.21	0.82	2.63	0.00	53.77	1.59
CSMC 2007-C2 A2	30.11	2.11	4.02	0.00	19.43	1.33
CSMC 2007-C2 A2	30.11	2.11	4.02	0.00	19.43	1.33
JPMCC 2007-LD11 A2	30.18	2.54	9.80	0.34	22.66	1.32
JPMCC 2007-LD11 A2	30.18	2.54	9.80	0.34	22.66	1.32
JPMCC 2007-LD11 A2	30.18	2.54	9.80	0.34	22.66	1.32
GSMS 2007-GG10 A2	30.02	2.55	9.50	2.38	19.60	1.25
GSMS 2007-GG10 A2	30.02	2.55	9.50	2.38	19.60	1.25
GCCFC 2007-GG9 A2	30.10	2.28	0.44	1.23	18.52	1.52
GCCFC 2007-GG9 A2	30.10	2.28	0.44	1.23	18.52	1.52
GCCFC 2007-GG9 AAB	30.10	4.90	0.44	1.23	18.52	1.52
LBUBS 2007-C1 A3	30.23	4.26	4.76	8.07	29.90	1.45
LBUBS 2007-C2 A2	30.08	2.25	5.26	5.92	42.55	1.59
LBUBS 2007-C2 A2	30.08	2.25	5.26	5.92	42.55	1.59
LBUBS 2007-C2 A2	30.08	2.25	5.26	5.92	42.55	1.59
LBCMT 2007-C3 A2	30.02	2.59	5.03	10.41	19.68	1.45
LBCMT 2007-C3 A2FL	30.02	2.59	5.03	10.41	19.68	1.45
WBCMT 2007-C31 A2	30.16	2.50	2.56	0.00	21.57	1.26
WBCMT 2007-C31 A2	30.16	2.50	2.56	0.00	21.57	1.26
BACM 2007-1 A4	30.47	7.08	1.77	7.87	30.28	1.55
BACM 2007-1 A2	30.47	2.15	1.77	7.87	30.28	1.55
BACM 2007-1 A4	30.47	7.08	1.77	7.87	30.28	1.55
MLCFC 2007-6 A2	30.19	2.31	1.52	0.00	23.76	1.37
GSMS 2006-GG8 A2	30.23	1.83	9.86	0.77	43.32	1.44
GSMS 2006-GG8 A2	30.23	1.83	9.86	0.77	43.32	1.44
LBUBS 2006-C3 A2	30.55	1.31	2.68	3.62	45.77	1.54
MSC 2007-IQ14 A2	30.22	2.51	3.80	0.68	27.06	1.40
CSMC 2007-C3 A2	30.11	2.45	6.10	4.24	30.06	1.32
CSMC 2006-C3 A2	30.40	1.53	2.30	10.37	51.44	1.56
CSMC 2007-C5 A2	30.11	2.72	9.58	0.24	38.52	1.30
BACM 2006-6 A2	30.24	1.88	1.74	0.00	21.62	1.45
WBCMT 2007-C33 A2	30.04	2.62	3.30	0.66	28.51	1.35
WBCMT 2007-C33 A3	30.04	4.68	3.30	0.66	28.51	1.35
JPMCC 2007-LD12 A2	30.11	2.62	1.13	0.97	29.42	1.43
LBUBS 2006-C6 A2	30.23	1.68	1.26	0.42	33.78	1.55
LBUBS 2006-C6 A2	30.23	1.68	1.26	0.42	33.78	1.55
GCCFC 2006-GG7 A2	30.52	1.46	5.00	1.05	43.49	1.46
BACM 2007-3 A2	30.06	2.41	3.85	16.56	13.91	1.41
BACM 2007-3 A2	30.06	2.41	3.85	16.56	13.91	1.41
CSMC 2006-C4 A2	30.26	1.67	6.92	7.46	49.20	1.37
CWCI 2006-C1 A2	30.85	1.84	6.18	9.77	38.57	1.51
BACM 2006-5 A4	30.31	6.49	4.27	8.75	57.60	1.48
GECMC 2007-C1 A2	30.28	2.30	3.34	5.38	26.90	1.26
BACM 2006-4 A2	30.31	1.69	2.85	3.21	65.02	1.55
CSMC 2006-C5 A2	30.19	2.06	4.02	9.38	46.89	1.43
WBCMT 2006-C27 A2	30.35	1.77	6.61	0.00	45.53	1.45
MSC 2007-HQ11 A2	30.21	2.18	2.82	0.00	22.28	1.44
MSC 2007-HQ11 A2	30.21	2.18	2.82	0.00	22.28	1.44
JPMCC 2006-LDP8 A2	30.34	1.88	2.07	6.49	24.96	1.98
CWCI 2007-C2 A2	30.17	2.18	2.13	5.31	37.11	1.43
GSMS 2006-GG6 A2	30.51	1.12	5.48	3.13	63.71	1.59
GSMS 2006-GG6 A2	30.51	1.12	5.48	3.13	63.71	1.59
GSMS 2006-GG6 A2	30.51	1.12	5.48	3.13	63.71	1.59
LBUBS 2007-C6 A2	30.04	2.62	1.89	0.09	47.98	1.34
MLMT 2006-C1 A2	30.82	1.40	5.73	11.95	42.12	1.66
MLMT 2006-C1 A3	30.82	2.89	5.73	11.95	42.12	1.66
MSC 2006-HQ8 A4	31.67	5.97	4.22	0.00	52.74	1.46
BSCMS 2007-PW16 A2	30.23	2.53	2.90	0.00	40.90	1.50
BSCMS 2007-PW16 A2	30.23	2.53	2.90	0.00	40.90	1.50
BSCMS 2007-PW16 A2	30.23	2.53	2.90	0.00	40.90	1.50
JPMCC 2006-CB17 A4	30.31	6.91	1.99	0.00	37.51	1.46
JPMCC 2006-CB17 A4	30.31	6.91	1.99	0.00	37.51	1.46
JPMCC 2006-CB17 A4	30.31	6.91	1.99	0.00	37.51	1.46
WBCMT 2006-C28 A2	30.26	1.89	3.42	0.73	34.18	1.36
WBCMT 2006-C29 A2	30.07	1.98	4.48	0.00	23.42	1.60
CD 2007-CD4 A2B	30.16	2.14	6.83	6.74	28.59	1.48
CD 2007-CD4 A2B	30.16	2.14	6.83	6.74	28.59	1.48
BSCMS 2006-PW14 A2	30.47	2.09	1.86	4.60	42.06	1.49
WBCMT 2007-C30 A3	30.06	2.25	1.30	0.84	23.33	1.21
WBCMT 2007-C30 A3	30.06	2.25	1.30	0.84	23.33	1.21
WBCMT 2007-C30 A3	30.06	2.25	1.30	0.84	23.33	1.21
LBUBS 2006-C7 A2	31.86	1.99	4.61	1.20	38.80	1.76
BSCMS 2006-PW13 A2	30.75	1.80	2.31	0.22	38.89	1.45
BSCMS 2006-PW13 A4	30.75	6.58	2.31	0.22	38.89	1.45
CD 2006-CD2 A4	30.48	6.01	3.57	4.58	51.28	1.54
CD 2006-CD2 A2	30.48	1.20	3.57	4.58	51.28	1.54
MLCFC 2007-9 A2	30.16	2.73	1.63	2.15	47.32	1.38
CD 2006-CD3 A5	30.00	6.71	3.22	8.95	49.76	1.51
BACM 2007-4 A2	30.12	2.58	1.59	0.36	32.26	1.62
MLCFC 2007-5 A2	30.23	2.27	1.65	0.00	36.74	1.34
MLCFC 2007-5 ASB	30.23	4.78	1.65	0.00	36.74	1.34
BSCMS 2007-PW15 AAB	30.28	4.70	3.51	12.43	37.25	1.38
BSCMS 2007-PW15 A2	30.28	2.34	3.51	12.43	37.25	1.38
WBCMT 2006-C23 A2	30.62	1.18	3.44	3.38	56.96	1.51
BSCMS 2006-PW12 A2	30.63	1.48	0.74	2.14	63.08	1.49
BSCMS 2007-T26 A2	27.35	2.27	3.79	0.35	19.96	1.96
BSCMS 2007-T26 A4	27.35	7.24	3.79	0.35	19.96	1.96
JPMCC 2006-CB16 A4	30.37	6.66	3.31	0.38	43.44	1.54
JPMCC 2006-CB16 A2	30.37	1.79	3.31	0.38	43.44	1.54
CSMC 2006-C1 A2	31.06	0.80	2.29	6.43	60.76	1.74
GMACC 2006-C1 A4	30.65	5.91	2.33	7.23	52.86	1.58
GMACC 2006-C1 A2	30.65	0.97	2.33	7.23	52.86	1.58
WBCMT 2006-C24 A3	36.78	6.18	4.10	8.09	63.12	1.52
WBCMT 2006-C24 A3	36.78	6.18	4.10	8.09	63.12	1.52
JPMCC 2006-CB15 A4	30.63	6.46	7.25	7.73	41.54	1.36
JPMCC 2006-LDP6 A4	30.55	6.27	5.31	2.79	52.25	1.78
JPMCC 2006-LDP6 A2	30.55	1.33	5.31	2.79	52.25	1.78
MLCFC 2006-2 A2	30.69	1.36	3.60	0.32	49.97	1.72
MLCFC 2006-3 A4	30.45	6.66	4.43	7.82	61.62	1.45
CGCMT 2006-C4 A2	30.57	3.25	1.90	1.54	67.23	1.55
WBCMT 2006-C26 A2	30.89	1.62	6.20	10.69	52.71	1.58
CMLT 2008-LS1 A2	33.12	2.59	3.60	0.53	51.83	1.42
WBCMT 2006-C25 A4	31.65	6.23	1.30	0.76	68.36	1.79
WBCMT 2006-C25 A2	31.65	1.01	1.30	0.76	68.36	1.79
CD 2007-CD5 A2	30.19	2.73	6.48	2.11	33.71	1.38
CD 2007-CD5 A4	30.19	7.70	6.48	2.11	33.71	1.38
MSC 2006-T21 A2	27.71	1.01	1.50	0.00	36.14	2.17
CGCMT 2008-C7 A2B	30.07	3.70	5.43	6.19	55.53	1.45
COMM 2006-C7 A2	30.85	1.42	0.80	2.39	63.91	1.63
COMM 2006-C7 A4	30.85	6.35	0.80	2.39	63.91	1.63
COMM 2006-C7 A2	30.85	1.42	0.80	2.39	63.91	1.63
COMM 2006-C7 A4	30.85	6.35	0.80	2.39	63.91	1.63