CDOs/CLOs

In the clubby world of smaller middle-market lending, CLO managers are having a hard time obtaining creme-de-la-creme middle market collateral. That is, unless you are able to obtain a member's only jacket in the form of an origination platform. In fact, the majority of MM CLO managers going forward are expected to be seen as part of a specialty manager or orgination platform.

After increasing the estimated construction costs for building an emissions control facility at a West Virginia plant, and adding a novel twist to the deal's structure, Allegheny Energy, Inc. received approval from the Public Service Commission of West Virginia to use asset-backed securities to finance the project.

Ready to learn a thing or two about how to expand their corners of the ABS business, industry professionals are swarming around Las Vegas this week for the ASF 2007'.

To stay competitive, electronic gadgets in our day and age have to be multi-dimensional. It's not enough for a cell phone to merely make calls, it must also play music, send e-mails, take pictures and perform myriad other tasks. If it does only one thing, it will fail.

After much talk, it appears that Cairn Capital will produce the first managed CPDO, to be sold by arranger JPMorgan Chase & Co. The deal is among the latest in a string of variations on ABN Amro's flagship CPDO product, Surf, which debuted last Fall. While a number of investors are still scratching their heads as to how, exactly, the structure works, arrangers are cooking up plans for all sorts of CPDOs, including managed deals, those that reference the ABX indices and those that reference bespoke portfolios.

The majority of outstanding mezzanine CDOs will experience HEL downgrades within their portfolios this year, Lehman Brothers researchers wrote in a report last week. Given an environment with 5% home price appreciation, roughly 90% of mezzanine CDOs originated between 2003 and 2006 will have exposure to HEL bonds due for a rating agency downgrade, the researchers said. What's more, one-fifth of outstanding mezzanine CDOs have 10% or more exposure to the expected downgrades, and in a flat HPA scenario, roughly 30% of outstanding CDOs would have a 10% or higher exposure.

During its last full workweek of January, the ABS market started off by displaying a full spectrum of sentiments. On one extreme end, investors remained wary of spread levels to enter into ABX trades after the rollout of the third ABX.HE index, series 07-1.Trading on that rollout started on Jan. 19. Conversely, issuers were eager to exhibit their wares ahead of the popular ABS 2007 industry conference now underway in Las Vegas.

U.S. small business loan ABS will likely undergo higher delinquencies for the first half of 2007, because of shifting economic conditions and credit concerns.

By David Glehan, director, and Amanda Hopkins, rating specialist, Standard & Poor's

The consumer credit outlook for 2007 looks benign. Although mortgage delinquencies and foreclosures are rising, they are up from exceptionally depressed levels. There was little room for them to go anywhere but higher.