The movement towards a CMBS market has been stop-and-go since the crisis began in earnest last year. Lisa Pendergast, managing director of Jeffries & Co. noted that spreads, not surprisingly, have been reacting to market developments. They tightened considerably--from a frighteningly wide gap earlier this year--when the government announced CMBS would be included as collateral for TALF. They widened again when S&P announced it would downgrade hundreds of bonds that at first had been considered as acceptable collateral for TALF. The next round of tightening, Pendergast predicted, will be when further details of PPIP are announced.

Market volatility aside, the opportunities for capital market finance that are in the offing are intriguing to many. For instance, Rick Jones, partner with Dechert, noted that a PPIP fund could theoretically receive lever from both the Treasury Department and the New York Federal Reserve Bank.

There are also market chatters about the first new issue subscription in August, he said, adding "there will have to be a lot of heavy lifting on any deals in the pipeline to get done." One likely structure, he said, would be a single obligar with extremely low leverage, with fresh financing for the borrower entity. A REIT would be a prime candidate, he said.

This all said, the panelists warned of speed bumps ahead as well--some significant enough to derail the budding new incarnation of the capital markets.

For starters, TALF is set to expire at the end of the year, Jones noted. "The industry is hammering Congress about the need for an extension. If we don't get it, then never will have so many people worked so hard for so little." Action needs to be taken now, he said, because of the nature of the securitization market, where the lead time for deals can be two months.

Interestingly, the stress test results for the banking system--which turned out to be better than expected--have derailed some of the momentum for PPIP, Sargent noted. Another potential issue is the Administration's proposal to revamp the financial sector. CMSA worries about a few of the provisions in it, Sargent said, namely the 5% risk retention requirement.

The issue many in the industry have with it is that retained risk should apply not just to originators but to anyone to whom the risk is transferred, explained John D'Amico senior managing director of Centerline Capital

"The concept of having skin in the game has a big following in Congress, and the idea does make sense," he said. "But it needs to be looked at in the context of each asset structure."

Instant Insights /

Panel: Capital Markets on Slow Track to Revival

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