Transcript Leveraged Finance Overview

Presentation to:
The Real Estate Lenders Association
Market Update
October 2010
Table of Contents
I.
CMBS Market Update
-
Spread Environment
-
Hedging Environment
-
OBP-2010 Case Study
-
Deal Underwriting Case Study
-
Competitive Landscape
-
CMBS Deal Comparison
-
BofAML Real Estate Qualifications
2
CMBS Market Update
Spread Environment
Significant Spread Tightening in AAA CMBS
2/10/2009
Fed Announces TALF
may expand to legacy
CMBS
1,400
1,200
1,000
3/24/2009
11/16/2009 - 12/10/2009
PPIP and TALF for
Flagler*, DDR and Inland
legacy CMBS
5/1/2009
announced
TALF expands to
Q4 2009
include new CMBS
Market lenders
and allow for 5
start making new
year loans
loans for CMBS
800
October 2010
JPMCC 2010-C2,
COMM 2010-C1,
WFMC 2010-C1*,
BALL 2010-HLTN*
August 2010
GSMS 2010-C1,
VNO 2010-VNO
June 2010
One Bryant Park*,
JPMCC 2010-C1
600
1,400
1,200
1,000
800
600
400
400
200
200
-
0
Ja 8
n0
Fe 9
b0
M 9
ar
-0
Ap 9
r-0
M 9
ay
-0
Ju 9
n0
Ju 9
l-0
Au 9
g0
Se 9
p0
O 9
ct
-0
N 9
ov
-0
D 9
ec
-0
Ja 9
n1
Fe 0
b1
M 0
ar
-1
Ap 0
r-1
M 0
ay
-1
Ju 0
n1
Ju 0
l-1
Au 0
g1
Se 0
p1
O 0
ct
-1
0
ec
-
D
N
ov
-
08
-
*BofAML led deal
Generic 10 Year Super Senior AAAs
CMBX 06-1AAAs
High Grade Corporate Index
REIT Bond Index

Spreads on generic 10yr AAA super-senior bonds have tightened approximately 345bps since October 2009, and are currently trading in the S+275 area

Synthetic CMBX 06-1 AAAs spreads have tightened approximately 140bps since October 2009 and are currently trading in the S+62 area

BofAML expects to be in the market this week with a $740.0MM multi-lender/multi-borrower conduit transaction (WFMC 2010-C1) as well as a $2.7Bn
legacy large loan securitization of the Hilton Hotels Mortgage (BALL 2010-HLTN)
3
CMBS Market Update
Hedging Environment
No Natural Spread Hedge

While CMBS lenders have once again begun to lend with a securitization exit in mind, hedging loan pipelines continues to be an art:

Lending volume remains low which has increased warehousing periods, adding additional importance and difficulty to loan
hedging in the current fixed income markets

CMBX and IG are instruments of choice. TRS transactions will become viable with additional new issuance

CMBX is a thinly traded market dominated by fast-money investors and broker dealers. Accounts use the CMBX to make macro
bets for short term profit


While the CMBX market tightens, both secondary and new issue cash CMBS markets have lagged the rally causing spread
hedging to become less effective.
Since late August, as the S&P 500 rallied, CMBX tightened approximately 50bps, while Generic cash spreads were 10bps tighter.
Additionally, new issue 10yr spreads, were relatively unchanged.
CMBX Outperforming IG and Cash CMBS
____________________
AAA 06-1
Generic AAA 30% Super
Source: BofAML Research and Bloomberg
4
IG
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
600
550
500
450
400
350
300
250
200
150
100
50
CMBS Market Update
OBP-2010 Case Study
One Bryant Park

Bank of America Merrill Lynch structured and underwrote the July 2010 $1.30 Billion financing backed by The Bank of America Tower at One Bryant Park
located in New York City. Bank of America, which represents 76% of the NRA, has 18yr remaining on its lease
Groundbreaking Transaction

First securitization to combine taxable CMBS and tax-exempt Liberty Bonds secured solely by real estate

First single property CMBS transaction since 4 Times Square in December 2006

Building was appraised for $2.2Bn

Innovative structure whereby both taxable and tax-exempt loans and both issuing vehicles are governed by a single servicing agreement
Key Achievements

39-year final maturity maximizes benefit of Liberty Bond financing

Financing is designed to allow for future refinancing of AAA CMBS while leaving Liberty Bonds in-place
Capital Structure and Pricing
Tranche
Class Type
Proceeds
Cumulative
Coupon
Cumulative
Loan / SF
AAA
Taxable
650,000,000
650,000,000
4.6492%
4.6492%
$276
AA (Component 1)
Tax-exempt
206,200,000
856,200,000
5.1250%
4.7638%
$364
AA (Component 2)
Tax-exempt
145,400,000
1,001,600,000
5.6250%
4.8888%
$425
A
Tax-exempt
87,100,000
1,088,700,000
5.6250%
4.9477%
$462
BBB-
Tax-exempt
211,300,000
1,300,000,000
6.3750%
5.1797%
$552
5.1797%
$552
Total/Wtd Avg.
1,300,000,000
CMBS Market Update
Deal Underwriting Case Study
Underwriting Standards

Sizing constraints have eased as traditional lenders re-enter the market and the competition to lend intensifies.

Below is a comparison of how BofAML’s underwriting standards have changed within the last year. The market is now willing to push
debt yield constraints into the 9.25% range. Spread compression of approximately 30 bps in combination with the current interest rate
environment allows borrowers to lock in at historically low all-in coupons.
February 2010
October 2010
Variance
Property Type:
Class A Office
Class A Office
Location:
Washington, DC
Washington, DC
Term:
10 Years
10 Years
Amortization:
30 Years
30 Years
NOI:
$3,512,046
$3,512,046
NCF:
$2,939,576
$2,939,576
Cap Rate:
7.0%
6.5%
(50 bps)
Debt Yield:
11.00%
9.25%
(175 bps)
Spread:
Swaps + 272
Swaps + 240
(32 bps)
10 Yr UST:
3.66%
2.52%
(114 bps)
10 Yr Swap Spread:
0.15%
0.07%
(9 bps)
10 Yr Swap Rate:
3.81%
2.58%
(123 bps)
DSCR:
1.45x
1.44x
LTV:
53.2%
58.9%
5.64% pts
Loan Proceeds:
$26,700,000
$31,800,000
$5,100,000
All-in Financing Rate:
6.53%
4.98%
Lenders are once again willing to be aggressive for certain high quality properties located in key markets.
CMBS Market Update
Competitive Landscape
Competitive Landscape
CMBS Lender Market
Banks
Most Competitive Portfolio Lenders
Non Banks
B-Piece Buyers
Life Companies
Balance Sheet Banks

BofAML

Apollo

Blackstone

MetLife

Bank of China

Citigroup

Basis Capital

Centerline

NY Life

BofAML

Deutsche Bank

Cantor Fitzgerald

Crexus

NW Mutual

Wells Fargo

Goldman Sachs

Colony

Elliott

Principal

WestImmo

JP Morgan

G2 Capital

H2

Prudential

Morgan Stanley

Ladder Capital

LNR

Wells Fargo

Loancore

Rialto

Starwood

Torchlight
CMBS Market Update
CMBS Deal Comparison
Recent New Issue CMBS Transactions
2010-OBP
JPMCC 2010-C1
Freddie Mac 2010-K7
GSMS 2010-C1
JPMCC 2010-C2
Transaction Type:
CMBS - Large Loan
CMBS - Conduit
CMBS - Agency
CMBS - Conduit
CMBS - Conduit
Underwriter:
BofAML and JPM
JPM
BofAML and DB
Goldman, Sachs
JPM
Date of Issuance:
6/25/10
6/11/10
6/10/10
8/4/10
10/7/10
Size:
$1.3Bn
($650.0MM CMBS)
$716.3MM
$1.2Bn
$788.5MM
$1.1Bn
AAA Spread:
S + 150 bps
S + 140 bps (5yr) / S + 160
(7yr) / S + 165 (10yr)
S + 60 bps (5yr) /
S+ 80 bps (10yr)
S + 125 bps (5yr) /
S + 135 bps (10yr)
S + 130 bps (5yr) / S + 145
(7yr) / S + 150 (10yr)
Security:
First-lien mortgage
First-lien mortgage
First-lien mortgage
First-lien mortgage
First-lien mortgage
Term:
10yr ARD
Various
Various
Various
Various
Amortization:
Interest Only ARD
Various
Various
Various
Various
LTV:
29.5%
61.5%
70.1%
53.7%
60.0%
Wtd. Avg. Debt Yield:
20.2%
12.4%
9.3%
15.2%
12.8%
Rating Agencies:
S&P / Fitch / Realpoint
Fitch / Moody's
Moody's
Moody's / DBRS
S&P / Fitch
Property Type:
Office
Various (Retail 70.9%)
Multifamily
Various (Retail 78.2%)
Various (67.0% Retail)
8
CMBS Market Update
BofAML Real Estate Qualifications
BofAML Leading in the Real Estate Debt Market
$BN
First Half 2010 - Bookrunners of Global Real Estate Bonds
(Includes: CMBS, CDO, REIT Bond)
$BN
$6.0
$6.0
$5.0
$5.0
$5.4
$5.0
$4.0
$4.0
2009 – Bookrunners of Global Real Estate Bonds
(Includes: CMBS, CDO, REIT Bonds)
$4.0
$2.9
$3.0
$2.8
$2.6
$2.4
$2.2
$2.2
$1.5
$2.0
$1.0
$0.0
$0.0
BARC
MS
CITI
RBS
CS
GS
$2.0
$1.9
$1.3
$1.0
DB
$3.6
$3.0
$2.3
$2.0
BofAML JPM
$3.7
BofAML JPM
JF
GS
DB
MS
BARC
$1.6
RBS
$1.5
JF
$1.3
CS
$1.0
CITI
BofAML was the most active CMBS Underwriter in Q2-2010

Co-Lead Manager and Joint Bookrunner on the $1.2Bn Freddie Mac 2010-K6 transaction that priced on March 24th and closed on April 6th

Co-Lead Manager and Joint Bookrunner on the $1.2Bn Freddie Mac 2010-K7 transaction that priced on June 10th and closed on June 24th

Co-Manager on the $716.3MM JPMCC 2010-C1 transaction that priced on June 11th

Co-Lead Manager and Joint Bookrunner on a $2.3Bn 2 nd lien mezzanine transaction of non-rated debt backed by Hilton Hotels Corp. that priced on
June 18th. This debt was originally funded in 2007 and restructured in April 2010

Co-Lead Manager and Joint Bookrunner on a $1.3Bn investment grade (AAA to BBB-) securitization of the One Bryant Park office property that priced
at the end of June
____________________
Source: Commercial Mortgage Alert
9