Thursday, October 28th, 2021
Pricing for Seasoned Performing Loans with David Tobin, Senior Managing Director
One of the most impressive characteristics of the recent surge in fixed income assets is how deep and strong the market is for seasoned performing loans collateralized by both commercial real estate and single family homes.
Why is this?
- Persistently low rate environment
- Unprecedented payoff velocity of existing loans
- Unprecedented liquidity at banks generated by unspent COVID stimulus and a year of excess savings
How should financial institutions take advantage of this?
- Examine loans at the lower end of the rate spectrum
- Evaluate credits that were questionable pre-COVID
- Consider exposure to businesses that peaked prior to COVID
- Like with equity rallies, sell loans into this demand vortex
Even with the absence of call protection, premium transactions for seasoned higher rate loans are common place.
Pre-financial crisis era loans which may have been underwater (due to subordinate financing, collateral value issues or both) are now “in the money”.
In a market where asset prices are at historic levels, but where fundamental economic issues exists in certain hotspots, an equity market sell off will impair value across all asset classes and cause spreads to blow out. It is an opportune moment for portfolio balancing.