CDOs/CLOs

The European Central Bank's announcement last week that it would hold off on any further rate hikes in the current market led market players to suspect that the Bank of England will follow suit. And while a slowdown on rate hikes is expected to improve consumer sentiment, some players believe the current market crisis could take more than two years to run its course.

Saying that securitization and its benefits require functioning capital markets, two industry groups last week outlined measures designed to improve market conditions for the ABCP and structured investment vehicle (SIV) sectors.

The volatility continuing to grip the structured investment vehicle (SIV) sector has forced at least one program to liquidate assets, while others brace for a similar fate. IKB Credit Asset Management (manager of IKB's Rhinebridge SIV) announced that it had liquidated $176 million of securities, becoming the first "conventional" SIV to do so. Cheyne Finance, an SIV with assets with a face value of approximately GBP6 billion ($12.9 billion) run by Cheyne Capital Management, a London-based hedge fund, also faced liquidation.

While even a couple of weeks ago European loan market participants were hoping for their market (which has barely seen a drop in the way of primary issuance over the past month) to get going in September, the word is now that it will take longer, much longer than that for new loans to be structured and priced. And when fresh transactions do come, sources say they will be vastly different from the funky stuff that Europe has so recently been witness to.

A small handful of home equity loan deals, a credit card transaction and a pending auto deal kept the ABS market from coming to a complete standstill in the last couple of weeks.

About this time last year, all signs indicated that the market for structured investment vehicles (SIVs) was up and coming. In the second half of 2006, the sector had about $250 billion in debt under management. According to Moody's Investors Service, that jumped to $400 billion by a week or so ago. The rating agency estimated that SIV-lites, a less closely managed and slightly simpler version of SIVs, had about $12 billion outstanding by the same date.

After a tumultuous summer in the subprime mortgage market sapped CDO liquidity, market participants are now faced with the challenge of salvaging earnings, which includes trimming down the payroll.

The subprime mortgage meltdown has had a much deeper impact on the jumbo loan market than many thought it would, leaving analysts to wonder what the best solution is for galvanizing the slumping sector. While many economists believe help will come from the Federal Reserve, some lawmakers want Fannie Mae's and Freddie Mac's loan restrictions loosened to aid the jumbo market.

When the CPDO structure was first introduced, with the launch of ABN Amro's SURF deal in August 2006, there was concern that the structures might not hold up in a volatile market, given that they are highly levered and market sensitive.

President George Bush's proposal to allow a certain segment of subprime borrowers to refinance into loans insured by the Federal Housing Administration is being seen as a measured first step to help troubled borrowers, although one that will likely only have a limited impact. The FHA modernization steps are expected to help about 240,000 homeowners refinance and avoid foreclosure, but it is considered a drop in the bucket when more than a million loans could default.