The Market Swings Made it Harder for Wall Street Firms to Sell New Issues

 Tremors in the market for commercial-mortgage-backed securities

Tremors in the market for commercial-mortgage-backed securities are hindering the recovery of the commercial-property sector. But the new-issue market for these securities has hit a speed bump amid turmoil in the capital markets, causing a key set of lenders to back off from making new loans. The result is that deal activity has fallen, putting the brakes on the rise in values.
Earlier this year, some analysts were predicting banks would issue as much as $50 billion in new commercial-mortgage securities this year. Now, they are saying volume may be as low as $30 billion to $35 billion.
A test for the sector is slated for later this week, when Deutsche Bank AG and UBS AG intend to sell a pool of $1.4 billion in commercial mortgages. In response to the skittish market, the deal will offer investors 30% in so-called credit protection, nearly double the levels they offered in their last issuance in June. The market swings made it harder for Wall Street firms to sell new issues. It also posed risks for the underwriters who were having a harder time hedging against price declines as they made and accumulated commercial mortgages to prepare them for securitizations. But the changes in the market have caused some smaller firms to back out of the commercial-mortgage-security sector entirely, including hedge fund Citadel LLC, which is pulling out of issuing loans intended for securitization given the drop in demand, according to people familiar with the matter.

http://online.wsj.com/article