CMBS Market Watch Weekly

Transcription

1 Fixed Income Research CMBS Market Watch Weekly Structured Products Americas Contributors Gail G. Lee Serif Ustun, CFA Sylvain Jousseaume Focus on Appraisal Reductions and Shortfalls Rapidly rising delinquencies and the deterioration in property values bring various CMBS mechanisms into the spotlight. This week we discuss the implementation of appraisal reductions and the resulting interest shortfalls in CMBS. Public-private FDIC asset sale on a $1.85 billion portfolio: Colony and Cogsville purchased from the FDIC a 40% equity interest in a pool of 1,600 distressed commercial real estate loans. FDIC will retain the other 60% and share returns on the assets. The purchase price was approximately 59%. Four bids were submitted, either on a 20% unleveraged equity basis or on a 40% with 1:1 leverage basis. Elliott Management to buy a CMBS B-piece: The hedge fund will be purchasing the B-piece of the $750 million CMBS deal led by Goldman Sachs (Commercial Mortgage Alert 7/16). With other firms such as Citadel and Marathon setting up origination platforms, hedge fund integration within the CMBS industry may be one of the trends for CMBS and CMBX Spreads and Prices T SWAP PRICE PRICE Δ bps Δ bps Δ bps Δ bps Δ $ Δ $ Δ $ CMBS Spreads 07/15/10 07/08/10 06/17/10 07/15/10 07/08/10 06/17/10 07/15/10 07/08/10 CMBX.4 07/15/10 07/08/10 06/17/10 AAA 10y r (Super SR)* CMBX.NA.AAA AA 10y r $ CMBX.NA.AM A 10y r $ CMBX.NA.AJ BBB 10y r na na na na na na $5 --- CMBX.NA.AA BBB- 10y r na na na na na na $4 --- CMBX.NA.A AAA 5y r CMBX.NA.BBB AAA 10y r (Generic) CMBX.NA.BBB AAA 10y r (AM) $ CMBX.NA.BB AAA 10y r (Junior) $ Source: M arkit BB 10y r na na na $2 --- SWAP B 10y r na na na $1 --- CMBS Δ bps Δ bps PAC IO Credit Curve 07/15/10 07/08/10 06/17/10 Support IO AAA 5y r/10y r Strip IO AAA/AA AA/A Interest-Rate Swap Spreads to T 5y r Sw ap y r Sw ap *AAA 10yr (Super Senior) spreads for Vintage 2007 bonds. Source: Credit Suisse ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANT DISCLOSURES, PLEASE REFER TO

2 What is an appraisal reduction? What is ARA? What is ASER? Appraisal reductions may be automatic Focus on Appraisal Reductions and Shortfalls Rapidly rising delinquencies and the deterioration in property values bring various CMBS mechanisms into the spotlight. This week we discuss the implementation appraisal reductions (and resulting interest shortfalls) in CMBS. We begin by describing the general process and related terminology 1. Appraisal reductions allow for a reduction of servicer advances for a loan that is expected to suffer a loss. To calculate those reductions, the special servicer obtains a third party independent appraisal 2. Such an appraisal is triggered by specific loan events, as defined and described in the pooling and servicing agreement (PSA). Examples of such events are: 120 days of delinquency, 60 days delinquency after either a borrower bankruptcy or the assignment of a receiver, or immediately after a loan becomes REO or is materially modified. The appraisal reduction amount can vary from deal to deal, but is usually calculated as indicated below. For each loan, the Appraisal Reduction Amount (ARA) equals the excess of: The sum of the unpaid principal balance, unpaid servicer advances and other charges 3 Over The sum of 90% of the appraised value 4 and letters of credit with the amounts in reserve funds, escrows If the appraisal value of the property is sufficiently high relative to the total loan exposure, it is likely no loss will be taken and the appraisal reduction amount will be zero. It will increase above zero as the negative equity in the loan increases. When the appraisal reduction amount is positive, the servicer will advance interest only on the unpaid loan balance less the appraisal reduction amount. This results in the total advance for the loan to be lower than before the appraisal reduction. This difference between the new and old monthly advances is called the appraisal subordinate entitlement reduction, or ASER. This appraisal reduction calculation is often performed monthly, and as the total loan advances grow, so will the cumulative ASER. Finally, the servicer is typically required to reappraise the property each year for so long as a loan event is in effect. Any additional decrease in property value would further increase the amount of ASER. If no updated appraisal is available after a specific time period (typically the 120 th day of delinquency), an appraisal reduction will automatically take place with an appraisal reduction amount equal to 25% of the unpaid principal balance of the loan. 5 In practice, it often takes more than 60 days for a special servicer to determine whether ordering an updated appraisal (and incurring the related cost) is even warranted. In some cases, a special servicer may disagree with the appraisal methodology or question the assumptions made by the appraiser, further lengthening the process. In the event of a material decline in the value of a property whose updated appraisal has been delayed, automatic appraisal reductions help protect senior bondholders by limiting servicer advances sooner than may otherwise be the case. Additionally, the appraisal reduction mechanism allows servicers to examine the total exposure of a loan versus the current value of the property and to determine whether an advance (even a reduced one) would be recoverable at all. 1 Please note that we intend to portray the general mechanics of CMBS trust. Investors should always refer to their specific Pooling and Servicing Agreement for the terms of a particular trust. 2 For loans smaller than $2 million, an internal valuation may be sufficient. 3 Interest on the servicer advances is also added; other charges include all interest due that has not already been advanced by the servicer and currently due, but unpaid, real estate taxes, insurance premiums, ground rents, etc. 4 The 10% haircut reflects the expected costs of disposing of the asset 5 This amount may vary, but is generally 25% to 35%. CMBS Market Watch Weekly 2

3 Where to look in the PSA? Our descriptions above illustrate the general mechanism in CMBS deals. That said, some descriptions and terms may vary across deals and in order to determine a particular deal s nuances, we list the areas of the PSA that should be the most relevant: In Section 1, Defined Terms, search for the definitions such as : Appraisal Reduction Amount Required Appraisal Mortgage Loan (or equivalent) Appraisal Event, Appraisal Trigger Event, or Appraisal Reduction Event In Section 3, look for the subsection Resolution of Defaulted Mortgage Loans and REO Properties. This should contain elements related to the timing of the required appraisals. The recent history of ARA and ASERS The amount of conduit loans with ARA has been increasing steadily from 0.24% in June 2008 to 5.53% in June 2010 (Exhibit 1). The 60+day delinquencies increased from 0.39% to 7.26% during the same period. Looking closer, we note that the amount of loans with ARA is tracking the amount of loans in 60+ days delinquent with an approximate twomonth lag. Exhibit 1: Increases in ARA and ASER versus Delinquencies 14% 12% 10% 8% 30+Days Dlq or Performing Specially Serviced (PSS) % 60+Days Dlq% % of Loans with ARA % of Loans with Cumultative ASER 11.55% 7.26% 6% 5.53% 4% 5.14% 2% 0% Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Source: Credit Suisse In Exhibit 2, we show that 52% of loans (by count) had the initial appraisal reduction within 60 to 120 days after becoming 60 days delinquent (60dlq). This is consistent with the frequent 120-day timing described above. For 18% of loans, appraisal reductions took place between 120 to 180 days after becoming 60dlq, and for 14% of loans, more than six months elapsed before the initial appraisal reductions were implemented. By contrast, the remaining 18% of loans had an appraisal reduction either less than 60 days after becoming 60dlq or sometimes without becoming delinquent at all. CMBS Market Watch Weekly 3

4 Exhibit 2: Timing of ARAs After Loans Become 60 Days Delinquent Initial ARAs for vintage 2005 to 2008 loans Loan Count 1, % 16% % 14% Less than 60 days days days +6 months Source: Credit Suisse, Trepp From ASERs to bond interest shortfall More shortfalls are on the way As the appraisal reductions are done for delinquent loans, the resultant ASERs represent the shortfall to the Trust. This shortfall flows through the waterfall structure of a typical CMBS deal and results in a reduced (or no) interest payment for the most subordinate classes in the deal. For vintages 2005 to 2008, the average interest shortfall is 3.46% in June, implying that shortfalls are reaching to BBB-rated classes. Exhibit 3 shows the range of interest shortfalls by deal and shelf/issuer. The most affected deal in June was JPMCC 2008-C2, where shortfalls are reaching the A-J class and result in partial interest payment. The shortfalls are largely due to two defaulted loans, which are the top and third largest loans in the deal: Promenade Shops at Dos Lagos loan ($125 million, 11.1% of deal) is currently having $108 million ARA (the most recent appraisal dated January 2010 was $28.5 million). The third largest loan, the Westin Portfolio ($104 million in Trust, 9.2%), is experiencing $43 million ARA. Based on the accumulation of delinquent loans and progression of appraisal reductions (or lack of) for such loans, we expect the shortfalls to increase materially in upcoming months. Exhibit 4 shows the list of 20 deals with the highest concentration of loans either currently experiencing appraisal reductions or pending ARAs in June. For example, the Peter Cooper Village/Stuyvesant Town loan (PCVST) does not contribute any interest shortfalls to five deals it had securitized, including the MLCFC and WBCMT 2007-C30 transactions in the table. As PCVST became 60 days delinquent per the July remittance reports, we expect an appraisal reduction within 60 days according to governing PSA and for it to be reflected in the September or October remittance reports. CMBS Market Watch Weekly 4

5 Exhibit 3: Widespread Range of Interest Shortfalls Across Shelves Data as of June % 14% 12% 10% 8% 6% 4% 2% 0% BofA BS (PWR) Citi/DB CS GS/GRWC (GG) JPM LB/UBS ML MS (IQ,HQ) MS/BS (TOP) Wachovia Others Shortfall Pct of Trust Min Shelf Avg Max Source: Credit Suisse, Trepp Exhibit 4: Deals with the Highest Concentration of Loans with ARA and Monthly ASERs Data as of June 2010 % of Loans (by deal balance) CMBS Deal Current Int. Shortfalls (subordination level %) ARA/ASER Exists ARA/ASER Pending ARA/ASER Exists + Pending MLCFC % 23.2% 24.1% MSC 2007-HQ % 22.8% 23.3% MLCFC % 11.8% 22.8% BACM % 6.9% 22.8% WBCMT 2007-C % 20.6% 22.4% CSMC 2006-C % 2.3% 21.9% JPMCC 2008-C % 1.1% 21.7% LBUBS 2007-C % 17.7% 21.0% LBCMT 2007-C % 6.2% 20.7% CSMC 2007-C % 4.8% 20.7% CSMC 2007-C % 8.7% 20.5% BSCMS 2007-PW % 12.7% 17.9% MSC 2007-HQ % 11.5% 17.3% WBCMT 2006-C % 1.8% 17.3% JPMCC 2006-CB % 5.9% 17.2% CSMC 2008-C % 11.5% 16.5% CSMC 2007-C % 7.0% 16.1% GSMS 2007-GG % 3.7% 15.7% GECMC 2007-C % 10.0% 15.7% CWCI 2007-C % 13.7% 15.4% Source: Credit Suisse, Trepp CMBS Market Watch Weekly 5

6 What happens at liquidation? Upon loan liquidation, the allocation of loan interest shortfalls across the certificates may vary depending on the PSA. Most CMBS deals issued before 2009 distribute proceeds to each sequential certificates in the following order: A Interest accrued and past due on the class. B Principal pay down on the balance of the class. C Reimbursement of realized losses and of additional trust fund expenses allocated to the class. The catch is that the principal payment in the second rule above is made only on the portion of the loan proceeds applied as principal payment by the servicers. The allocation mechanics between principal recovery and interest recovery are often not explicit in the prospectus; however, the PSA defines a loan level waterfall for recovery proceeds, usually at the end of Section 1. This waterfall most often allocates proceeds in the following order: 1 To non-recoverable advances and work-out delayed reimbursement. 2 To accrued unpaid interest on the loan excluding ARD s excess interest. 3 To recovery of principal (this is the only portion considered principal payment). 4 To other items such as prepayment premiums, default charges. Since only the rule 3 is allocated to principal, the more senior portion of recovery related to accrued unpaid interest in rule 2 does not result in a pay down of the most senior classes but is rather allocated to recover certificates of interest shortfalls and principal writedowns in more junior classes using for each sequential class the A/B/C rules of the bond waterfall 6. 6 This description intends to capture the most significant behaviors of the trust. The allocation of proceeds may be more convoluted in practice. We recommend Investors rely on the appropriate PSA when considering specific investments. CMBS Market Watch Weekly 6

7 TECHNICAL UPDATE Exhibit 5: Implied Loss Analysis as of July 15, 2010 CMBX5 Bond Level Loss Implied Life Size of the Tranche(3) Loan Level Loss Annual Loan Level Loss Rate Loan Level Severity Annual Loan Level Default Rate(4) Market Implied IO PO Index Coupon Price Spread(1) Value(2) Value Subordination CMBX-NA-AAA % % 29.52% 39.24% 5.86% 60% 9.77% CMBX-NA-AM % % 19.87% 22.34% 3.47% 60% 5.79% CMBX-NA-AJ % % 12.66% 15.95% 2.89% 60% 4.82% CMBX-NA-AA , % % 10.64% 11.45% 2.62% 60% 4.37% CMBX-NA-A , % % 8.00% 8.72% 2.42% 60% 4.04% CMBX-NA-BBB , % % 4.72% 5.73% 2.24% 60% 3.74% CMBX-NA-BBB , % % 3.68% 4.61% 1.85% 60% 3.08% CMBX-NA-BB , % % 2.69% 3.09% 3.19% 60% 5.31% CMBX4 Bond Level Loss Implied Life Size of the Tranche(3) Loan Level Loss Annual Loan Level Loss Rate Loan Level Severity Annual Loan Level Default Rate(4) Market Implied IO PO Index Coupon Price Spread(1) Value(2) Value Subordination CMBX-NA-AAA % % 29.90% 40.00% 6.20% 60% 10.34% CMBX-NA-AM % % 19.99% 22.69% 3.73% 60% 6.21% CMBX-NA-AJ , % % 12.33% 16.08% 3.15% 60% 5.24% CMBX-NA-AA , % % 10.23% 11.23% 2.76% 60% 4.59% CMBX-NA-A , % % 7.77% 8.55% 2.47% 60% 4.11% CMBX-NA-BBB , % % 4.44% 5.45% 2.17% 60% 3.61% CMBX-NA-BBB , % % 3.36% 4.36% 1.78% 60% 2.97% CMBX-NA-BB , % % 2.50% 2.80% 2.90% 60% 4.83% CMBX3 Bond Level Loss Implied Life Size of the Tranche(3) Loan Level Loss Annual Loan Level Loss Rate Loan Level Severity Annual Loan Level Default Rate(4) Market Implied IO PO Index Coupon Price Spread(1) Value(2) Value Subordination CMBX-NA-AAA % % 30.00% 37.92% 6.20% 60% 10.34% CMBX-NA-AM % % 20.05% 22.36% 3.83% 60% 6.39% CMBX-NA-AJ , % % 11.46% 15.44% 3.16% 60% 5.27% CMBX-NA-AA , % % 9.49% 10.53% 2.58% 60% 4.29% CMBX-NA-A , % % 7.17% 8.05% 2.27% 60% 3.78% CMBX-NA-BBB , % % 3.92% 4.81% 1.76% 60% 2.93% CMBX-NA-BBB , % % 2.78% 3.79% 1.59% 60% 2.64% CMBX-NA-BB , % % 2.15% 2.44% 2.53% 60% 4.21% Source: Credit Suisse We assume zero prepayment on the underlying loans, which, unless they otherwise go into default, will be paid off as scheduled. Detailed loan-level information can be found in Trepp or Intex. (1) Assumes a flat constant default curve, with default occurring immediately (2) Based on coupon (3) As a % of entire capital structure, and also include pari passu tranches (4) As a % of current balance CMBS Market Watch Weekly 7

8 CMBX2 Bond Level Loss Implied Life Size of the Tranche(3) Loan Level Loss Annual Loan Level Loan Level Loss Rate Severity Annual Loan Level Default Rate(4) Market Implied IO PO Index Coupon Price Spread(1) Value(2) Value Subordination CMBX-NA-AAA % % 30.40% 36.04% 6.31% 60% 10.51% CMBX-NA-AM % % 20.34% 22.25% 4.00% 60% 6.67% CMBX-NA-AJ % % 12.40% 14.80% 2.87% 60% 4.79% CMBX-NA-AA , % % 9.49% 10.21% 2.19% 60% 3.65% CMBX-NA-A , % % 7.17% 7.84% 1.87% 60% 3.12% CMBX-NA-BBB , % % 3.92% 4.72% 1.49% 60% 2.48% CMBX-NA-BBB , % % 2.78% 3.71% 1.31% 60% 2.19% CMBX-NA-BB , % % 2.15% 2.43% 1.59% 60% 2.65% CMBX1 Bond Level Loss Implied Life Size of the Tranche(3) Loan Level Loss Annual Loan Level Loan Level Loss Rate Severity Annual Loan Level Default Rate(4) Market Implied IO PO Index Coupon Price Spread(1) Value(2) Value Subordination CMBX-NA-AAA % % 30.36% 35.06% 6.96% 60% 11.59% CMBX-NA-AM % % 20.55% 22.03% 4.37% 60% 7.28% CMBX-NA-AJ % % 12.77% 14.43% 2.99% 60% 4.99% CMBX-NA-AA % % 10.63% 11.15% 2.44% 60% 4.07% CMBX-NA-A , % % 7.88% 8.55% 2.07% 60% 3.44% CMBX-NA-BBB , % % 4.58% 5.27% 1.54% 60% 2.57% CMBX-NA-BBB , % % 3.39% 4.31% 1.39% 60% 2.32% Source: Credit Suisse We assume zero prepayment on the underlying loans, which, unless they otherwise go into default, will be paid off as scheduled. Detailed loan-level information can be found in Trepp or Intex. (1) Assumes a flat constant default curve, with default occurring immediately (2) Based on coupon (3) As a % of entire capital structure, and also include pari passu tranches (4) As a % of current balance Exhibit 6: 2010 CMBS Issuance in Millions Change from Non- Total* Multi- Floating Single Month Borrower Rate Borrower Other Total Total January $0 $0 $0 $1,983 $1,983 $0 na $0 $1,983 $1,024 $ Global Total Agency CMBS Resecur. / CDO February $0 $0 $0 $250 $250 $0 na $1,655 $1,905 $2,471 $493 March $0 $0 $0 $0 $0 $0 na $552 $552 $3,143 $423 April $310 $0 $0 $196 $506 $0 na $470 $976 $818 $150 May $0 $0 $0 $0 $0 $0 na $0 $0 $948 $0 June $716 $0 $650 $0 $716 $559 na $0 $716 $1,156 $0 Total $1,026 $0 $650 $2,429 $3,455 $559 na $2,677 $6,132 $9,560 $1,906 Source: Credit Suisse, Commercial Mortgage Alert, IFR. *Does not include international deals created for central-bank exchanges. CMBS Market Watch Weekly 8

9 Exhibit 7: Historical CMBS Issuance in Millions Supply Conduit/ Fusion Floating Rate Single Borrower Other Total [7] Non- Total* Global Total Agency CMBS Resecur. / CDO 2009 $0 $0 $1,360 $1,634 $2,994 $4,576 $7,570 $8,927 $4, $10,707 $0 $1,438 $0 $12,146 $6,728 $18,874 $3,725 $5, $188,477 $20,225 $11,318 $13,657 $233,677 $84,798 $318,475 $3,366 $34, $161,748 $25,114 $6,921 $10,599 $204,381 $107,993 $312,374 $7,503 $35, $136,210 $18,649 $8,479 $6,170 $169,507 $70,299 $239,806 $4,625 $16, $73,961 $13,093 $5,153 $631 $92,838 $35,438 $128,276 $6,117 $8, $52,885 $14,386 $6,851 $3,879 $78,000 $20,803 $98,803 $6,999 $5, $35,141 $10,497 $3,351 $3,084 $52,074 $28,706 $80,779 $5,247 $8, $35,619 $10,505 $13,585 $7,441 $67,150 $22,714 $89,864 $3,331 $3, $27,848 $10,057 $4,766 $4,368 $47,039 $12,116 $59,156 $1,945 $ $35,273 $6,353 $7,073 $7,872 $56,571 $9,402 $65,973 $1,335 $ $50,646 $14,902 $2,061 $6,722 $74,332 $629 $74,961 $1,640 $2, $21,543 $1,733 $3,272 $10,250 $36,798 $3,557 $40,355 $357 $1, $9,995 $710 $3,110 $12,523 $26,338 $958 $27,296 $1,255 $419 Total $840,053 $146,224 $78,738 $88,830 $1,153,845 $408,717 $1,562,562 $56,372 $128,277 CMBS Issuance in Millions 2009 Supply Month Conduit/ Fusion Floating Rate Single Borrower Other 2009 Total 2008 Total Change from Non- Total* 2009 Global Total Agency CMBS Resecur. / CDO January $0 $0 $0 $0 $0 $0 - $272 $272 $208 $0 February $0 $0 $0 $0 $0 $1, % $155 $155 $914 $0 March $0 $0 $0 $0 $0 $4, % $895 $895 $236 $0 April $0 $0 $0 $0 $0 $4, % $168 $168 $265 $0 May $0 $0 $0 $0 $0 $ % $0 $0 $446 $0 June $0 $0 $0 $559 $559 $1,270-56% $1,174 $1,733 $1,252 $715 July $0 $0 $0 $250 $250 $0 - $612 $862 $486 $1,442 August $0 $0 $0 $0 $0 $0 - $223 $223 $769 $171 September $0 $0 $0 $0 $0 $0 - $944 $944 $443 $175 October $0 $0 $0 $81 $81 $0 - $0 $81 $1,711 $100 November $0 $0 $400 $0 $400 $0 - $0 $400 $1,467 $797 December $0 $0 $960 $744 $1,704 $0 - $134 $1,838 $731 $719 Total $0 $0 $1,360 $1,634 $2,994 $12,146-75% $4,576 $7,570 $8,927 $4,119 CMBS Issuance in Millions 2008 Supply Month Conduit/ Fusion Floating Rate Single Borrower Other 2008 Total 2007 Total Change from Non- Total 2008 Global Total Agency CMBS Resecur. / CDO January $0 $0 $0 $0 $0 $2, % $0 $0 $0 $0 February $1,234 $0 $0 $0 $1,234 $21,124-94% $3,059 $4,293 $550 $0 March $3,232 $0 $1,438 $0 $4,671 $38,805-88% $1,430 $6,101 $725 $35 April $4,023 $0 $0 $0 $4,023 $17,319-77% $4,729 $8,752 $0 $0 May $949 $0 $0 $0 $949 $21,157-96% $221 $1,170 $546 $0 June $1,270 $0 $0 $0 $1,270 $37,855-97% $182 $1,451 $516 $5,793 July $0 $0 $0 $0 $0 $22, % $1,671 $1,671 $227 $0 August $0 $0 $0 $0 $0 $30, % $50 $50 $0 $0 September $0 $0 $0 $0 $0 $8, % $4,630 $4,630 $480 $0 October $0 $0 $0 $0 $0 $6, % $792 $792 $259 $0 November $0 $0 $0 $0 $0 $17, % $117 $117 $422 $0 December $0 $0 $0 $0 $0 $9, % $296 $296 $0 $0 Total $10,707 $0 $1,438 $0 $12,146 $233,677-95% $17,178 $29,323 $3,725 $5,828 Source: Credit Suisse, Commercial Mortgage Alert. *Does not include international deals created for central-bank exchanges. 7 Our total domestic volumes do not include agency deals and resecuritizations. CMBS Market Watch Weekly 9

10 Relative Value Monitor Exhibit 8: 10-Year Sector CMBS, REIT, and Corporate Spreads 1,200 1,000 CMBS AAA REIT BBB Index Corporate A 1,200 1,000 Spreads to T Spreads to T /20/09 9/3/09 10/18/09 12/2/09 1/16/10 3/2/10 4/16/10 5/31/10 7/15/10 Source: Credit Suisse Exhibit 9: 5-Year Sector Exhibit 10: 10-Year Sector Δ bps Δ bps 3-month Δ bps Δ bps 3-month 07/15/10 07/08/10 06/17/10 Hi Lo Avg 07/15/10 07/08/10 06/17/10 Hi Lo Avg T Yield 1.74 % T Yield 2.98 % Sw ap 24bp AAA CMBS Agency LUCI Single-A Sw ap 2bp AAA CMBS Agency FNMA D LUCI Single-A LUCI: Liquid U.S. Corporate Index is an investment grade, corporate bond index consisting of ~800 liquid, dollar-denominated issues, priced daily and rebalanced monthly by Credit Suisse. Source: Credit Suisse CMBS Market Watch Weekly 10

11 Exhibit 11: AAA and AJ CMBX-2, 3, 4 Prices $100 $90 $80 $70 $60 $50 $40 $30 $20 CMBX-NA-AAA 2 CMBX-NA-AAA 3 CMBX-NA-AAA 4 CMBX-NA-AJ 2 CMBX-NA-AJ 3 CMBX-NA-AJ 4 3/25/10 4/1/10 4/8/10 4/15/10 4/22/10 4/29/10 5/6/10 5/13/10 5/20/10 5/27/10 6/3/10 6/10/10 6/17/10 6/24/10 7/1/10 7/8/10 7/15/10 $100 $90 $80 $70 $60 $50 $40 $30 $20 Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. Exhibit 12: AA & A CMBX-2, 3, 4 Prices $70 $60 $50 $40 $30 CMBX-NA-AA 2 CMBX-NA-A 2 CMBX-NA-AA 3 CMBX-NA-A 3 CMBX-NA-AA 4 CMBX-NA-A 4 $70 $60 $50 $40 $30 $20 3/25/10 4/1/10 4/8/10 4/15/10 4/22/10 4/29/10 5/6/10 5/13/10 5/20/10 5/27/10 6/3/10 6/10/10 6/17/10 6/24/10 7/1/10 7/8/10 7/15/10 $20 Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. Exhibit 13: BBB, BBB- and BB CMBX-2, 3, 4 Prices $35 $30 $25 $20 $15 $10 $5 $0 CMBX-NA-BBB 2 CMBX-NA-BBB- 2 CMBX-NA-BB 2 CMBX-NA-BBB 3 CMBX-NA-BBB- 3 CMBX-NA-BB 3 CMBX-NA-BBB 4 CMBX-NA-BBB- 4 CMBX-NA-BB 4 3/25/10 4/1/10 4/8/10 4/15/10 4/22/10 4/29/10 5/6/10 5/13/10 5/20/10 5/27/10 6/3/10 6/10/10 6/17/10 6/24/10 7/1/10 7/8/10 7/15/10 $35 $30 $25 $20 $15 $10 $5 $0 Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. CMBS Market Watch Weekly 11

12 Exhibit 14: CMBX 5 (CMBX ) AAA AM AJ AA A BBB BBB- BB Current Price Change vs. Prior Week Minimum (18 mo.) Maximum (18 mo.) (18 mo.) Standard Deviation # of Std. Dev Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. Data as of July 15, 2010 CMBX started trading on May 22, 2008 CMBX AM was added on February 9, Exhibit 15: CMBX 3 (CMBX ) Exhibit 16: CMBX 4 (CMBX ) AAA AM AJ AA A BBB BBB- BB AAA AM AJ AA A BBB BBB- BB Current Price Change vs. Prior Week Minimum (18 mo.) Maximum (18 mo.) (18 mo.) Standard Deviation # of Std. Dev Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. Data as of July 15, 2010 Exhibit 17: CMBX 1 (CMBX ) Exhibit 18: CMBX 2 (CMBX ) AAA AM AJ AA A BBB BBB- AAA AM AJ AA A BBB BBB- BB Current Price Change vs. Prior Week Minimum (18 mo.) Maximum (18 mo.) (18 mo.) Standard Deviation # of Std. Dev Source: Credit Suisse, Markit. Prices before April 20, 2009 are based on Credit Suisse estimates. Data as of July 15, 2010 CMBX AJ and CMBX AJ were added on January 4, CMBX AM and CMBX AM were added on February 9, CMBS Market Watch Weekly 12

13 CMBS Spreads - Change on the Year SPREAD TO SWAPS 5AAA 10AAA 10AA 10A 10BBB 10BBB- 7/15/ na na 12/30/ na na Change (65) 60 (25) (325) na na SPREAD TO T 5AAA 10AAA 10AA 10A 10BBB 10BBB- 7/15/ na na 12/30/ na na Change (72) (132) (37) (337) na na SWAP SPREADS 5yr Sw ap 10yr Sw ap 7/15/ /30/ Change (7) (12) CMBS Spread to Swaps History 5AAA 10AAA 10AA 10A 10BBB 10BBB- YTD na na Range na na na na Range na na Range Range Range Range Range Range Range Range Range Range Range Source: Credit Suisse CMBS Market Watch Weekly 13

14 STRUCTURED PRODUCTS RESEARCH Lara Warner, Managing Director Global Head of Fixed Income and Economic Research Gail Lee, Managing Director Global Head of Structured Products Research NORTH AMERICA Eleven Madison Avenue, New York, NY Asset-Backed Securities (ABS) Chandrajit Bhattacharya, Director Senior Strategist, Group Head Thomas Suehr, Associate Collateralized Debt Obligations (CDO) / Collateralized Loan Obligations (CLO) David Yan, Director david.yan@credit-suisse.com Commercial Mortgage Backed Securities (CMBS) Gail Lee, Managing Director Senior Strategist, Group Head gail.lee@credit-suisse.com Sylvain Jousseaume, Vice President sylvain.jousseaume@credit-suisse.com Serif Ustun, Vice President serif.ustun@credit-suisse.com Mortgage Backed Securities Residential (MBS) Mahesh Swaminathan, Director Senior Strategist, Group Head mahesh.swaminanthan@credit-suisse.com Mukul Chhabra, Vice President mukul.chhabra@credit-suisse.com Qumber Hassan, Vice President qumber.hassan@credit-suisse.com LONDON One Cabot Square, London E14 4QJ Carlos Diaz, Associate carlos.diaz@credit-suisse.com JAPAN Izumi Garden Tower, 1-6 Roppongi 1-Chome, Minato-ku, Tokyo Tomohiro Miyasaka, Director Japan Head tomohiro.miyasaka@credit-suisse.com Hua Wang, Associate hua.wang@credit-suisse.com

15 Disclosure Appendix Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. Important Disclosures Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail, please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Credit Suisse s policy is to publish research reports as it deems appropriate, based on developments with the subject issuer, the sector or the market that may have a material impact on the research views or opinions stated herein. The analyst(s) involved in the preparation of this research report received compensation that is based upon various factors, including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's Investment Banking and Fixed Income Divisions. Credit Suisse may trade as principal in the securities or derivatives of the issuers that are the subject of this report. At any point in time, Credit Suisse is likely to have significant holdings in the securities mentioned in this report. As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the debt securities of the subject issuer(s) mentioned in this report. For important disclosure information on securities recommended in this report, please visit the website at or call For the history of any relative value trade ideas suggested by the Fixed Income research department as well as fundamental recommendations provided by the Emerging Markets Sovereign Strategy Group over the previous 12 months, please view the document at Credit Suisse clients with access to the Locus website may refer to For the history of recommendations provided by Technical Analysis, please visit the website at Credit Suisse does not provide any tax advice. Any statement herein regarding any federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Emerging Markets Bond Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate. Corporate Bond Fundamental Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector. Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment. Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector. Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector. Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is factual or a reasonable, non-material deduction based on an analysis of publicly available information. Corporate Bond Risk Category Definitions In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor, designated as Market, or that it has a higher or lower risk profile, designated as Speculative and Conservative, respectively. Credit Suisse Credit Rating Definitions Credit Suisse may assign rating opinions to investment-grade and crossover issuers. Ratings are based on our assessment of a company's creditworthiness and are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB, B) is dependent on our assessment of an issuer's ability to meet its financial commitments in a timely manner. Within each category, creditworthiness is further detailed with a scale of High, Mid, or Low with High being the strongest sub-category rating: High AAA, Mid AAA, Low AAA obligor's capacity to meet its financial commitments is extremely strong; High AA, Mid AA, Low AA obligor's capacity to meet its financial commitments is very strong; High A, Mid A, Low A obligor's capacity to meet its financial commitments is strong; High BBB, Mid BBB, Low BBB obligor's capacity to meet its financial commitments is adequate, but adverse economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB obligations have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B obligor's capacity to meet its financial commitments is very weak and highly vulnerable to adverse economic, operating, and financial circumstances; High CCC, Mid CCC, Low CCC obligor's capacity to meet its financial commitments is extremely weak and is dependent on favorable economic, operating, and financial circumstances. Credit Suisse's rating opinions do not necessarily correlate with those of the rating agencies.

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