CDOs/CLOs

Recognizing that 2007 was an unusual year, and that highlighting individual transactions would not convey the ethos of a tumultuous year, the ASR staff has decided to veer away from our usual practice of naming notable deals. Aside from the comparatively scarce deal flow in 2H07, 2007 was notable not because of innovative transactions, but it will go down in history as a year of reckoning for all industry participants.

The reputations of the rating agencies mirrored the fate of the securitization market last year: As the credit conditions went south, so did their standing in the industry.

After a tumultuous summer in mortgages triggered a whirlwind of CDO downgrades, this past year will not be seen in a positive light for U.S. ABS CDOs.

Monolines appear to be the primary target in the securitization market's game of mortgage loss speculation. Sources said that revisions to rating agency criteria for guarantors and the negative outlooks that resulted were the ugliest points in 2007 for these bond insurers.

As the CDO market ushers in 2008, many industry players are hoping that the gloomy conditions that plagued 2007 will remain in the past. But with recession fears looming over the structured credit markets, and rating agencies tweaking their methodologies, new issuance will continue to move slowly, at least for the first half of the year, market participants said.

With no crystal ball to guide them, market players are finding it harder to predict how 2007's unprecedented liquidity crunch might affect future European CDO performance.

Michael Kanef has moved internally within Moody's Investors Service. Kanef, who was formerly group managing director in ABS, is now the chief regulatory and compliance officer at Moody's. He replaces Jeanne Dering who is retiring. There is no word yet on Kanef's replacement as the rating agency's ABS group is going through a transition period.

Choosy and cautious investors put the brakes on the ABS production market last week by tightening their purse strings. Without their money on the table, sell-side sources doubted that anything would be done at all before year end.

At a forum hosted by the American Securitization Forum last Wednesday in New York, ABS participants willingly shared the blame for current market problems, and admitted that a lot of the old ways of doing business, including relying so heavily on REMIC laws, will not work.

As the bulk of loans underlying the ABX.06-1 index approach their reset, market participants now say the performance of these mortgages could start 2008 off on a better footing than previously expected. They cited the better quality of the underlying loans and the timing of the resets as the factors contributing to the better outlook.