CDOs/CLOs

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?

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Securities 7,948.09 1 16.98 11 JP Morgan Securities Inc. 5,503.0 2 11.757 12 Banc of America Securities LLC 5,059.6 3 10.809 9 Citigroup Global Markets, Inc. 3,342.4 4 7.141 7 Credit Suisse Securities (USA) LLC 3,319.7 5 7.092 6 ABN AMRO Incorporated 2,783.0 6 5.946 5 Merrill Lynch, Pierce, Fenner & Smith Inc 2,726.4 7 5.825 5 Deutsche Bank Securities, Inc. 2,509.2 8 5.361 6 Barclays Capital 2,384.3 9 5.094 5 RBS Greenwich Capital 2,374.5 10 5.073 5 Industry Total 46,807.6 - 100.0 50 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup Global Markets 34,211.9 1 15.4 46 Merrill Lynch 31,645.6 2 14.3 38 Wachovia Securities 16,546.7 3 7.5 28 JPMorgan Securities 14,866.9 4 6.7 25 Banc of America Securities 14,629.0 5 6.6 19 Deutsche Bank Securities 13,609.7 6 6.1 29 Morgan Stanley 13,053.5 7 5.9 61 Bear Stearns 11,721.3 8 5.3 23 UBS 11,148.3 9 5.0 26 Lehman Brothers 10,594.0 10 4.8 23 Industry Total 221,972.5 - 100.0 397 Source: Thomson Financial