Investors have again shown their preference for pools of high-quality residential mortgage assets, as seen from the relatively tight pricing for a new issuer from Redwood Trust’s Acacia. The CDO deal is underwritten by Greenwich Capital Markets.
The Acacia transaction is mostly static except for high-quality residential Alt-A MBS securities, which have a 2.25-year reinvestment period. Working in the deal’s favor is that Redwood Trust (RWT) is a well-known REIT and a prolific home equity and residential A issuer.
By comparison, TCW’s Charles River SF CDO, via UBS, priced its triple-As 10 basis points tighter than the MONY ABS CDO from Lehman, which had a far higher diversity score and several off-the-run ABS assets. MONY’s second ABS CDO subsequently printed its AAAs at Libor plus 65.
The tighter spread seems to echo market sentiment favoring vehicles that involve REITs, likely due to their relative safety and stability of return. Analysts at Banc One Capital Markets basically stated as much in a recent research report, noting that of all the collateral classes, REITs and mezzanine CMBS are “the securities of choice.”