CDOs/CLOs

The flight to quality in the credit markets has made pricing in the area a difficult issue, and has brought buyers and sellers of risk instruments to an impasse as to the value of structured products, according to a report by Moody's Investors Service. The ratings agency says, furthermore, that this process of untangling prices could take months to work through. "Before the credit markets can resume normal functioning, the creation of a new price consensus between (and among) buyers and sellers of risk instruments will be required," says the report, which was co-authored by Vice Chairman Christopher Mahoney. This won't happen quickly, according to the report, because many capital market participants are facing inventory problems with structured finance securities such as subprime, Alt-A-related RMBS, CDOs, and certain leveraged loans. The holders of these loans are not willing to dip to bargain basement sales, and meanwhile, on the other side of the fence, the buyers won't touch the offered prices because they think prices are still erratic and could erode further. The report focuses on what's missing from the market, says Mahoney, "which is fluidity, a readiness to engage and trade." As a result, he says, he thinks a more robust secondary market will develop, as levered players will be forced to sell illiquid securities at low prices. The report is called "From Illiquidity to Liquidity: The Path Toward Credit Market Normalization." It is the first in a series of planned reports in which Moody's will discuss systemic problems revealed by the subprime meltdown.

JPMorgan Chase restructured its 17-year-old ABCP program, called Jupiter Securitization Co., not - say sources familiar with the situation - as a defensive move against the currently volatile ABCP market, but so its sellers could avail itself of accounting procedures under FAS 46.

Much of the trouble proliferating through the major indices last week could, in part, be traced back to the ABS industry. This is where fast money and high-risk structures fed a long period of growth in the housing market, which many market participants now concede was unsustainable.

Liquidity issues that destabilized the delicately balanced ABCP market in recent weeks migrated north into Canada. Similar to problems that unfolded in the U.S. ABCP market, lack of investor confidence in the debt capital and credit markets widened spreads on all types of Canadian ABCP.

(The is the second installment of a two-part series. The first installment discussed the valuation challenges presented by the current difficult supbrime mortgage environment. This installment focuses on the other valuation complications resulting from troubles in the sector. )

The upsurge in housing over the past few years has given way to an unprecedented amount of questionable activity in the mortgage market, including fraud. And while regulators have ramped up their combative efforts, fraud's growing breadth has proved to be alarming for U.S. RMBS.

The dizzying rate at which Countrywide Financial Corp.'s prospects are changing from bad to worse can make one forget that two weeks ago Washington Mutual's own struggles were sharing headlines. What a difference several days, hours and minutes make in the dramatic downturn of America's biggest mortgage lender.

U.S. RMBS trouble is brewing for Bermuda-based Taberna Capital Management.

Fannie Mae acknowledged that 2006 was a tough year for financial results on its 10-K-related conference call last Thursday, announcing that net income declined to $4.1 billion, compared with $6.3 billion in 2005.

In the shadow of an unfriendly and overhung credit market, Sallie Mae shareholders approved a buyout last week that would add as much as $16.5 billion to the leveraged finance pipeline. But don't consider the deal closed just yet. In light of government subsidy cuts, the private equity group let it be known that they may scuttle the deal altogether. Are the buyers really looking for an out, or are they making noise to help squeeze a better deal from the beleaguered student loan provider?