Distressed Debt Sale

Here is a Bloomberg article on a large distressed debt sale.  CWCapital, the second largest special servicer, is marketing a portfolio of bad mortgages on 76 properties.  Special servicers are the firms that deal with troubled mortgages in commercial mortgage backed securities (CMBS).  The article says that the portfolio is $345 million, which I am guessing is the face value of the mortgages, not the portfolio's estimated sale price.  The actual sale price will likely be lower.  I suspect the buyer will immediately start splitting and selling off the various mortgages, as the portfolio is a mixed bag with retail and office mortgages making up the largest portions of the pool.  The $345 million may seem like a large number, but CWCapital has $21 billion of delinquent mortgages on its books, and it's only the second largest special servicer.  LNR Property, the largest special servicer, is sitting on $23 billion of bad mortgages, according to the article.

The sale is a positive development.  The new debt buyers may be more willing to negotiate with property owners on some mortgages, something special servicers avoided due to their obligation to bondholders.   Other properties will be foreclosed and recapitalized, which is unfortunate, but necessary.  Due to this quote below, I wouldn't expect deep discounts on the pool:

“Funds have raised a significant amount of capital to buy a tsunami of distressed debt,” according to Harris Trifon, a commercial-mortgage debt analyst at Deutsche Bank AG. “That tsunami never came. There is a lot of pent-up demand for that part of the market.”