CDOs/CLOs

November remittance data ushered in more bad news this month, but the results were surprisingly milder than October.

There may be three weeks remaining in the asset backed securities production year, but traders and analyst say any serious action will remain under wraps until 2008.

Price dislocation in the CDO market has not only halted new issuance but has made the value of existing CDO securities almost impossible to assess. In an effort to address these valuation issues, Moody's Investors Service's Wall Street Analytics (WSA) recently launched Credit Values DCV (Discounted Cash Value), a product the rating agency hopes will enhance the transparency of CDOs by providing investors with valuation information about their securities.

Doubt over the monolines' triple-A-rating stability has been the subject of negative headlines since last summer. While a downgrade would have a dire effect on a guarantor's business model, particularly in the municipal bond market, which is especially dependent on the triple-A guarantee, there may be capital financing alternatives, market participants say.

Perhaps the most surprising element of the escalating concern about mispriced and hidden risk in financial markets is the lack of focus on derivatives - so far.

Walled in between the widespread perception of contagion in the financial markets and a long list of announcements of writedowns and layoffs, securitization industry professionals found themselves confronting another quiet week of productivity.

Aiming to create what it calls "a single family of global indices," Markit has acquired International Index Co. and agreed to acquire CDS IndexCo, in what will be the biggest and most important acquisition the company has made to date, according to Kevin Gould, executive vice president at Markit.

The coming months will likely bring an unprecedented amount of new litigation concerning asset-backed securities (ABS) and mortgage-backed securities (MBS) issued over the past two years. Disappointed investors are likely to pursue remedies on the strength of a variety of legal theories. Two concepts appear to be the most interesting at this point: (1) deficient disclosure about the trend of deteriorating loan quality and (2) deficient disclosure about the release of excess spread.

In what seems like an endless stream of write-downs on subprime RMBS and ABS CDO holdings, banks have had to revaluate their positions in the structured finance market, which lately means personnel reorganizations. But not all market participants are convinced that an internal restructuring will help solve the banks' problems.

Times are changing quickly for the student loan ABS sector, both externally and internally. While the asset class continues to attract attention from investor groups that are shying away from MBS products, lenders and secondary market financing sources are making progress in the way student loans are originated and securitized.