CDOs/CLOs

Everquest's IPO will give equity investors one of their first opportunities to take a concentrated stake in the fast-growing CDO market, provided they can muster trust in the company's CDO valuations.

U.S. CDO issuance has continued its rapid growth thus far in 2007, despite contraction in the subprime market, which has traditionally been a popular source of collateral. But the investment vehicle may be running out of fuel as market players credit its solid year-to-date performance as spillover from 2006.

With subprime borrowers facing resets on interest rates within the next few months and lacking the ability to refinance, loan modifications may be the "best and possibly the only option remaining in order to keep these borrowers in their homes," according to a recent report from Fitch Ratings.

Sometimes the thought of diminished ABS issuance, whether one sector or the whole business, rubs people the wrong way. It conjures up thoughts of sluggish productivity, and no one wants such a condition to go on for very long.

In what it hopes will be an uplifting step in a sinking subprime market, struggling residential mortgage provider Accredited Home Lenders agreed to be acquired by private equity fund Lone Star Fund for approximately $400 million, or $15.10 cash per share.

New York - Tighter underwriting was the catch phrase at the American Securitization Forum's annual conference last Wednesday. Market participants called for more stringent lending standards, increased market transparency and more attention to loan modifications to mitigate potential defaults in the subprime loan market.

Deutsche Bank Securities bulked up its investment solutions group - within the global capital markets division - last week with the addition of three new hires.

The CMBS market has been running strong for some time, as CMBS deals have, until recently, been considered a relatively cheap means of financing, serving as a popular way to fund buyouts, for example. Yet growth has come at the expense of deal quality. In April, the three rating agencies fired off a set of comments indicating that commercial mortgage underwriting was showing troubling signs of deterioration (Fitch Ratings, for one, predicts that 2007 vintage loans could have a 15% greater default rate than previous years). Culprits include CMBS so highly leveraged that borrowers need additional financing just to handle debt servicing, along with a larger number of poor-quality loans shoehorned into B-pieces of CMBS

Charlotte, N.C.-based investment management firm Babson Capital Management closed Babson Mid-Market CLO Ltd. 2007-II, the firm's first CLO to focus on middle-market loans, and the eighth CLO closed by the U.S. bank loan team in the past two years.

Quarterly credit card payment rates dropped for the first time in five years, as did one-month excess spread numbers. Yet the numbers did not revive concerns about whether consumers are finally becoming overwhelmed with debt.