CDOs/CLOs

The importance of credit risk management has certainly ballooned over the past few years, with increasing competition for yield. With that in mind, the International Association of Credit Portfolio Managers (IACPM) is heading into 2007 with a new board of directors and an agenda that includes standard form contracts on credit default swaps (CDS), as well as discussion of the implications of converging credit desks, the use of insider information and the increasing amounts of leverage in the market.

In the specialized business of ABS, Citigroup Global Markets attained its top ranking as lead manager of all public and 144a transactions in 2006 by being well rounded. The investment bank arranged about $120.7 billion in ABS deals, giving it a 9.9% share of the term ABS market and putting it well ahead of second-place finisher Merrill Lynch, which cleared $98.7 billion in deals. Overall U.S. ABS issuance totaled $1.2 trillion in 2006, up slightly from $1.1 trillion in 2005, according to Thomson Financial figures.

CDO heavyweight Merrill Lynch once again dominated U.S. CDO underwriting in 2006. The firm brought not only the greatest dollar volume in deals to the market, but also led innovation throughout the sector's record-setting year. Through a combination of landing key clients, new hires and high demand, the investment bank underwrote 65 deals last year totaling more than $50 billion and a 15% market share, according to Thomson Financial league table data.

Claire Robinson won a promotion to senior managing director at Moody's Investors Service, where she will oversee the rating agency's asset finance group for the Americas, as well as its U.S. public finance group.

Rarely do the domestic and global ABS markets leave participants with little to discuss or remember from the previous year. Who would have imagined, still, that the student loan sector would produce one of the U.S. ABS market's most anticipated and talked-about structures for 2006? That is what happened with Nelnet SAFE extendible-note ABCP program. Elsewhere in the U.S., the CDO market, not resting from its vehement drive to greater profits and diversification, generated too many structures to chose just one, so ASR selected three: SURF, Everest I, and a nifty hybrid CDO from Merrill Lynch that required no triggers.

Call it safe, call it predictable, but don't dare call the Federal Family Education Loan Program (FFELP) ABS collateral type stodgy. While the student loan ABS sector pulled out all the stops for a year of issuance totaling $34 billion, the FFELP program gave the asset-backed commercial paper sector far and away the most notable deal in 2006 - that is, if the spectacle of ravenous investors beating down the issuer's door for the paper is any indication.

Energized by high demand and synthetic technology - from LCDS to CDO CDS to the ever-popular ABCDS - there was no shortage of notable deals within the U.S. CDO sector in 2006.

The one notable deal from China in 2006 was issued in the international market. Macquarie Wanda Real Estate Fund - a joint venture between Australia's Macquarie Group and Chinese property developer Dalian Wanda - in October sold the first offshore CMBS involving nine properties located in the People's Republic of China.

Russia's first mortgage backed security is remarkable for a number of reasons, but the most compelling is this: private housing in the country scarcely existed before the 90s. By historical standards, the country's move from private property to widespread home ownership to the birth of the mortgage has been more a breathless race than a gradual evolution. And last year, state-owned JSC Vneshtorgank (VTB) took the baton.

As the European securitization market matures so does its repertoire of deals. Gone are the days of extreme innovation. Instead, the market is increasingly defined by steadiness and dependability. This is demonstrated by the steadfast pricing spreads over the past year. But a lack of innovation did not mean a lackluster year - 2006 still had its share of shining stars that stood out in the record mix of deals, specifically in the CMBS market.