2021

Our fine little CRE CLO business has exploded over the past couple of years, hasn’t it?  Last year, around this time, I recklessly predicted for my friends at Commercial Mortgage Alert that we might hit $30 billion of issuance in 2021.   I was the outlier…by a lot.  Well, it looks like we’ll finish the year closer to $45 billion and it’s clear that in the first quarter of 2022 we will be on fire.  Now, of course, I also thought that we’d have a fantastic year in early 2020 and then that pesky little bug changed our lives, so please consider my on-fire prediction subject to caveats, limitations and restrictions including, but not limited to, disease, dictators and the possibility that the Fed is making a colossal mistake.

All else being equal, the CRE CLO business will continue to grow and I don’t really see the appetite for this technology receding any time soon.  Could it?  Sure.  Annoying black swans aside, if the curve radically changes shape and creates outsized demand for fixed rate product, the CRE CLO business, as it has grown up in the past couple of years, will see challenges.  But more on this later.Continue Reading The CRE CLO Unleashed

Welcome, dear reader, to our annual Golden Turkey Awards.  But for my commitment to absolute fairness and concern over the appearance of impropriety, I would have awarded the first Golden Turkey Award to Dechert for actually getting the Golden Turkey Awards done this year.  What a crazy year end.  The market is insane.

On the other hand, while time is short, there’s plenty to bloviate about.  I remember last year we were absolutely ready for the end of the Trump administration because the Biden administration promised a “dull is cool” vibe.  Well, dull has been a failure.  The farrago of lingering Covid, a return to something which is clearly not normalcy, but something new and with a pond full of black swans flopping around, it is not dull.  So, how’s that working out for you?  The follies of 2021 at least make writing this column easier.  So, we went digging for inanity for the purpose of making gentle fun of things that broadly annoy us and, shockingly, we found things to talk about.  So, here we are once again.Continue Reading 2021 Golden Turkeys

The Great Index Reformation is coming.  (I note in passing that the last Reformation led to the 100 Years War…just saying.)  This is a massive change to our market that did not bubble up from the great unwashed on the barricades demanding change, but something that has been driven from the regulatory heights.  More a Peter the Great and less a Lenin sort of thing.  This transformation of the entire floating rate market from LIBOR to SOFR is scheduled to arrive in a market near you on January 1, 2022.  After that date, with very few exceptions, the banks will neither give nor take LIBOR.  Of course, they actually could do so, as the FCA has said that one-month LIBOR will be representative until June of 2023, but the regulators have made it clear that to do so would be considered an unsafe, unsound banking practice and no bank is going to volunteer for that appellation.
Continue Reading LIBOR and SOFR:  Welcome to a Two-Speed Market?

It’s coming up on awards season.  The Emmys were last week and weirdly, I got a thought bubble about nominees in the Black Swan category, walking the red carpet looking for attention!  Think the Masquerade scene from Phantom of the Opera when the Phantom comes prancing down the stairs to harsh the festivities (at least he sang well).  

We have some obvious nominees today.  But are they the real thing?  Will they move markets?  We have, with some reason, become inured to the disruptive headlines howling about threats to our way of life.  Is there simply too much chaos out there to pick out the things which are really relevant from the noise?  Our 24-hour news cycle is hardly helpful, is it?  The talking heads, with practiced expressions of concern, seriousness of purpose and faux competence, serve up our daily quantum of fear and distress (Film at 11!).  Don’t they seem almost gleeful to report yet another potential disaster?  With breathy anxiety, designed to tug at our atavistic fight or flight instincts, they repurpose as news exaggeration, hyperbole, vague allegations, unconfirmed reports and sheer speculation.

The scary part is, of course, that buried and obscured in all that noise might be real news, things that investors and market participants really ought to be paying attention to because they will matter.  The trick is sussing out the stuff that matters from the stuff that doesn’t.

So, we really do need to take into account these aspirational swans.  One of them could be that figurative dead archduke.

Let’s take a stroll along the red carpet and chat up some of these swans.Continue Reading Does A Red Carpet Full Of Black Swans Matter?

There’s a lot of reasons to structure a large loan destined for securitization as a mortgage in part and a mezzanine loan in part.  Sometimes it’s simply that the borrower is needy while the capital markets are charry.  In that case, the lender whacks up the credit into a mortgage loan for SASB execution and assumes (hopes) there’s someone out there with sufficient acumen, optimism or naivete to buy the mezzanine loan.  But sometimes, there are other reasons to divide a loan into a mortgage and mezz.
Continue Reading SASB: The (Shotgun?) Marriage of Mortgage and Mezz

It’s a rule around here that I don’t write on the same topic twice in a row because if you don’t get bored, I will.  I am making an exception this week to revisit last week’s blog about the industry’s failure to take on, or at least discuss, the considerable negative externalities of transferring our entire business from LIBOR to SOFR while we have time.  The problem, of course, and I recommend last week’s commentary for a more fulsome discussion (or screed), is that we are barreling toward a world in which trillions of dollars of floating rate debt will be based on an index that is not credit-sensitive and which may (and likely will) cause a transfer of value from the providers of capital to the users of capital.
Continue Reading It’s Time for The Industry to Engage on SOFR’s Voldemort Problem

To my gentler readers, first an apology for this interregnum in publication.  I’ve been sitting on this commentary like a hen on an egg for weeks.  All I can say is having to work for a living gets in the way of writing about interesting stuff.

It’s now July and supposedly the transition from LIBOR to SOFR is almost already a done deal.  Anyone notice that happening?  Not to bury the lead but it hasn’t happened.  Note that even the ARRC, between harrumphs about the slow take-up of SOFR products, has said that MAYBE they’ll let folks use Term SOFR soon (although they are still being a bit cagey on when and, perhaps more importantly, who will be given that privilege).  That’s not good if we’re gonna base an entire floating rate marketplace on SOFR.Continue Reading The Powers That Be Are Rallying Around SOFR and That’s a Mistake

I have spoken to a number of people over the past months who have raised money or built technology to take advantage of a broadly anticipated distressed opportunity which was certainly to be occasioned by the pandemic.  Did I miss it?  Was I distracted by the First Family’s secret service chomping dog controversy or the upcoming UFO big reveal?  Did it get by me when I simply wasn’t at my desk, making coffee?
Continue Reading Did the Distressed Debt Opportunity Slink by Me When I Wasn’t Looking?