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Citi Working On New CMBS Deal

Citigroup is said to be working with a number of banks to put together a new commercial mortgage-backed securities deal, which could hit the market as early as this month.

The deal is good news for the CMBS market, which has been inactive as a result of the credit crunch. The Citi deal will follow Morgan Stanley's planned $1 billion IQ deal, which is expected to be launched in mid-September and set a new pricing benchmark for the market, one trader said. The size of the deal could not be determined.

The Citi deal is seen as a derivative of the now-defunct super deal, the trader said. The idea of the super deal, which would have involved several banks contributing warehoused collateral, was floated earlier this year (REFI, 2/4). Plans stalled, however, due to concerns over the quality of the collateral (REFI, 3/24).

One securitization executive was gloomy about potential pricing. "CMBS pricing is incredibly wide. Break even is near 500 over swaps, so you're talking 9% [to AAA buyers] just to break even. And all this old paper was originated at 150 over swaps on bad valuations," he said. "It's going to be painful. This deal would be a money loser, but [the banks] are willing to take their hit." But an executive added that at least there are cash clearing levels for CMBS, which is not the case for other markets.

Executives at Citibank declined to comment.

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