Days after Standard & Poor’s downgraded the US credit rating, Deutsche Bank AG and UBS AG brought to market a new (at least new since the financial crash) CMBS structure. It was a so-called super senior, an innovation introduced in the heady days of 2005. Essentially, it offers a 30% subordination level, an amount significantly higher than the 21% credit enhancement that supports the next senior class, which also are rated AAA.
It would be easy to assume that the structure’s appearance was in response to the demand for ever-safer investment structures. After all, the risk factors in the economy include a slowdown in growth; partisan gridlock; and the rule-writing under Dodd-Frank, much of which the securitization industry has found dismaying. Also, signs of froth are creeping up again in underwriting.
For these reasons, many are beginning to conclude that the projections for the CMBS market this year—$30 billion to as much as $75 billion
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