CDOs/CLOs

The market material adverse change clause, or "market MAC," gives banks the ability to walk away from their obligation to syndicate or hold debt if further deterioration of the credit markets takes place. Market observers have seen a return of the once-typical clause, but they say it has yet to establish staying power.

Plenty of criticism has already been lobbed at the rating agencies, and panelists at IMN's ABS East conference in Orlando certainly did not spare them any fault.

When compared to the ABS CDO market, the CLO market has remained relatively intact, despite the liquidity dry-up in the corporate credit market this past summer and heightened concern about subprime RMBS contagion. But while new issuance appears to be picking up, an expected increase in corporate defaults could create future complications for these vehicles.

Amid anxieties over what lies ahead, conference delegates got some strongly worded advice last week on how to promote the ABS industrys recovery: bite the bullet, take losses and structure future deals with larger equity components. If the subdued cocktail parties and many underlying bar-side conversations did not underscore the markets shaken confidence, then the remarks delivered during the opening session of IMNs ABS East conference might have.

Several CMBS, student loan ABS and esoteric deals have hit the market since Nov.1, and issuance totaled more than $11 billion. Still, market sources suggest that the asset securitization industry has a long way to go before real recovery begins to take hold.

In recent months, the securitization market had come to rely on the consumer ABS asset classes to sustain production, while the subprime MBS and CDO markets retreated. Last week, however, that small group itself-comprised of credit card, auto and student loan ABS-began to look winded.

As rating agencies boost their CRE-surveillance criteria to defend against opacity, the Commercial Real Estate CDO market appears to be learning from transparency troubles in the ABS CDO space. Recently, Derivative Fitch released a report requesting CRE CDO managers to distribute enhanced and standardized loan-level information to investors in an effort to avoid downgrade shock, while increasing market liquidity.

The complexity of asset-backed securities (ABS) and collateralized-mortgage obligations (CMOs) has played a major role in Wall Street's current difficulties valuing the assets, and it has also created processing complexities resulting in operational and potential reputation risks as well as millions of dollars in unnecessary costs.

After the recent launch of CMBX. NA.4, spreads on initial trading are wide, market participants noted last week, explaining that the lastest series references riskier commerical mortgage bonds than its predecessors.

As the securitization industry tries to make sense of life after the credit market meltdown, we at Asset Securitization Report thought it would be a good time to sit down with some of the top players in the RMBS and CMBS market and hear their views on where we've been, where we're at and where we're going.