CDOs/CLOs

Par-based investors in the triple-A CLO market may soon have their sense of security tested. Many still apparently cling to the assumption that their bonds will ultimately be repaid at par, based on the senior position of these bonds in the transaction structure and the corresponding protection from potential losses.

Cohen & Co. CEO Christopher Ricciardi wrote an open letter to Treasury Secretary Henry Pauslon dated today titled Enhancing The Paulson Plan Through the Creation of a Federal Bond Insurance Corporation.

Securities and Exchange Commission (SEC) Chairman Christopher Cox called Tuesday for regulation of certain credit derivative products, saying the market was overrun by fraud that contributed to the housing crisis.

Sept. 15 was a day of reckoning for Wall Street as the market said goodbye to two U.S. financial institutions, 158-year old Lehman Brothers, whose parts will be wrapped into Barclays Capital, and 94-year old Merrill Lynch, which will now exist under the Bank of America umbrella.

In the wake of the announcement of the Lehman Brothers bankruptcy, ABS market participants are examining its effect on the industry.

The beginning of September was wracked with uncertainty as Fannie Mae and Freddie Mac struggled with liquidity issues. That was until the government stepped in with a bailout plan for the GSEs. However, the government cannot stop growing fears of mounting losses at Lehman Brothers, which continued last week.

Fitch Ratings said that credit events on Fannie Mae and Freddie Mac are unlikely to trigger large scale CDO downgrades even though both GSEs are referenced in approximately 30% of synthetic CDOs rated by the agency.

Standard & Poor's expects the U.S. Treasury's announcement that Fannie Mae and Freddie Mac had been placed in conservatorship by the Federal Housing Finance Agency, and S&P's resulting rating actions on these entities to have a minimal rating impact on U.S. and European synthetic CDO transactions, the rating agency said this afternoon.

MBIA will reinsure $184 billion worth of Financial Guaranty Insurance Corp.’s U.S. public finance book, providing a boost to municipal bond holders and to FGIC’s statutory capital position, the companies announced Wednesday night.

Fitch Ratings presents its asset-level projected loss analysis (PLA) to quantify loss expectations on structured finance (SF) CDOs.