CMBX widens as retailers report dismal earnings

CMBX spreads widened over the past week on the back of negative retail headlines from retailers such as JCPenney and Macy’s, marking the latest turn of the screw in what some have called this credit cycle’s Big Short.

  • By Alexander Saeedy
  • 20 Aug 2018
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As the retail sector has struggled in the face of growing online competition, CMBX indices that reference vintages of CMBS deals with heavy exposure to retail properties have been targeted for short trades by hedge funds.

That trade has yet to bear fruit in the more than three years since analysts at Deutsche Bank recommended it. Some retailers appeared to regain their footing after announcing a modest number of store closures, with the level of CMBS defaults not nearly as catastrophic as some predicted.

Now, however, the short sellers might have some reason to pat themselves on the back. Reported second-quarter earnings disappointed for Macy’s, while Sears’ shares touched an all-time low last week as the company continues to shed valuable assets in a bid to keep the business afloat.

That news filtered into CMBS markets. According to JP Morgan analysts, roughly 34 of the 40 malls in CMBX6 contain a JCPenney, while 21 count Sears as an anchor tenant, and 20 of those properties currently contain both a JCPenney and Sears.

While CMBX triple-A spreads across all series jumped by only about 1bp through the week, spreads on the triple-B minus tranches rose across the board, with widening of as much as 15bp, to 660bp on the series 6 and 16bp, to reach 416bp on the series 11 BBB- tranche. Still, spreads are overall tighter today on CMBX contracts tied to the BBB- tranches versus one year ago, with the exception of the series 11 BBB-.

There is also little sign that investors who are long CMBX view the contracts’ risks like long investors did for credit default swaps for residential mortgage-backed securities.

“The risks are much more understood than they were 10 years ago,” said Manus Clancy, head of CMBS research at Trepp. “It seems like a fair trade. It’s balanced between the longs and the shorts.”   

  • By Alexander Saeedy
  • 20 Aug 2018

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 12,508 23 18.18
2 Bank of America Merrill Lynch (BAML) 8,059 25 11.72
3 Lloyds Bank 5,761 18 8.38
4 Citi 5,606 15 8.15
5 JP Morgan 5,007 7 7.28

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Rank Lead Manager Amount $m No of issues Share %
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1 Citi 95,847.77 272 11.13%
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3 JPMorgan 72,172.60 208 8.38%
4 Wells Fargo Securities 69,859.54 198 8.12%
5 Credit Suisse 58,056.32 149 6.74%