CDOs/CLOs

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.

Early in the asset-backed securities production week, issuance was so slow that one trader said he thought investors had already snatched up whatever attractive paper was on the table.

Cohen and Co. is in the market with a $408 million cash-flow trust preferred CDO, ALESCO Preferred Funding XVII. The deal will be the 22nd trust preferred transaction completed by Cohen & Company Financial Management and its affiliates, but it might not be the most profitable. Market players speculate that the company might only break even, if not take a loss on the transaction, in a move they see as an effort to promote market liquidity.