CDOs/CLOs

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Banc of America Securities 5,632.54 1 16.842 6 JPMorgan Securities 4,677.83 2 13.987 5 Deutsche Bank Securities 3,551.49 3 10.619 5 Credit Suisse 3,423.1 4 10.235 4 Barclays Capital 2,544.83 5 7.609 2 RBC Capital Markets 2,531.0 6 7.568 3 Goldman Sachs 2,326.17 7 6.955 3 Citigroup Global Markets 2,107.4 8 6.301 3 Morgan Stanley 2,090.1 9 6.25 2 Lehman Brothers 1,380.67 10 4.128 1 Industry Total 33,443.9 - 100.0 17 Source: ASR Scorecards database

auto ABS 8% credit card ABS 12% equipment ABS 1% real estate ABS 70% student loan ABS 9% trade receivables 0% utilities ABS 0%

spite a spike in prepayment rates for resetting loans and dramatic increases in delinquencies, losses to the ABX were relatively contained early last week. Similarly, pricing activity for other securitization sectors was mildly affected.

The catastrophe bond asset class is used to tossing around big ideas that manage risk from huge storms. A planned $4 billion transaction from State Farm Mutual Automobile Insurance Co., however, might be the largest transaction that the sector has ever produced.

At the recent Financial Accounting Standards Board (FASB) meeting on June 22, mortgage market participants - including bank regulatory agencies, investors, accountants, lawyers, the Securities and Exchange Commission (SEC) and the office of its chief accountant - gathered to discuss the issue of loan modifications and, more specifically, their application under FAS140.

June remittance reports released Monday reflected a negative trajectory for ABX 06-2 and 07-1 indices that are backed by 2006 collateral - which was expected. Specifically, deals in 07-1 continued to underperform. The referenced transactions for that index have been performing worse versus those for ABX 06-1 and 06-2, and the June data clearly reflected that trend, Street analysts said.

As if the Bear Stearns liquidation were not enough to ruffle the ABS CDO market, industry participants expect similar meltdowns to occur within the next few weeks. And as difficulties increase in placing portions of ABS CDO issues across the credit spectrum, further market drama will only weaken the demand.

CDOs are no longer a one-off phenomenon in the municipal market.

Adding to the investor concern over a bearish ABS CDO market, Derivative Fitch recently announced that it may cut the ratings on classes from three 2003 diversified structured finance CDOs and one high-grade CDO issued last year that have exposure to the infamous 2006 vintage subprime closed-end second liens.

The world has changed. Traditional approaches used to set the level of program wide credit enhancement (PWCE) for ABCP programs fall short of quantifying the true default risk associated with such portfolios. These approaches such as the fixed percentage approach for multiseller ABCP programs or the obligor or security coverage approach for securities-backed programs, do not take into account many important portfolio characteristics that affect the portfolio default risk. Specifically, they do not fully account for the subtle portfolio characteristics such as asset type, correlaton, and rating distribution among other factors when determining the PWCE level. To address these factors, Fitch employs a VECTOR CP analysis for the securities backed and multi-seller ABCP programs it rates on a monthly basis and when evaluating new transactions to be included in the program to determine the default risk for a given ABCP portfolio.