Risk Retention Rules May Benefit Large CMBS Issuers

On Thursday, August 18th, Wells Fargo, Bank of America, and Morgan Stanley sponsored an $870.6 million transaction in the CMBS market. An American Banker article highlighted how the recent deal may provide large financial institutions with preferable capital treatment, the first of its type to comply with the new risk retention rules. The three banks’ exposure to the deal – collectively, 5 percent of the underlying assets, which amounts to $43.5 million – was “well received by investors.”

Though the final risk retention rule – a joint rule required under the Dodd-Frank Act - is not active until December 24th, the participating firms are “expected to take advantage” of concessions “unique to the CMBS market, allowing sponsors to satisfy the rules” by selling the risk to third parties.

Further, because this risk retention approach is unique to the CMBS market, “the pools were conservatively written,” according to the article. Peter McKee of Alston & Bird, in referencing the deal, said “It appears the deal priced so favorably that there should be [a] price advantage, going forward.”

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