CDOs/CLOs

UnumProvident Corp., a group and individual disability insurance provider, completed an insurance-linked ABS deal backed by premiums on long-term disability insurance policies. Proceeds from the transaction will finance a portion of the insurer's capital reserve requirements. The deal closed last Wednesday.

Trading on the ABS market was fairly light last week, as more than 3,000 market professionals prepared to head out to Orlando, Fla for Information Management Network's ABS East conference. By midweek, about $10 billion in deals were announced, and of that $3.8 billion had priced.

Working Capital Management Co., a fully supported asset-backed commercial paper conduit sponsored by Mizuho Corporate Bank, raised its purchase limit to $5 billion, from $3 billion. While it is not expected to substantially impact the ABCP sector, market sources familiar with the situation say that it represents the bank's more aggressive, albeit measured, commitment to acquiring for its securitization platform.

Wachovia Securities CDO analysts last month sought to find a new way to answer an old question: Is there a method to project future new-issue CDO performance using historical data? Their ultimate finding was yes, although with some caveats.

One year after bankruptcy reform legislation passed - changing the rules for who can file for bankruptcy and how it must be done - bankruptcy filings have stayed lower for longer than analysts expected. Filings are expected to average 12,000 to 13,000 per week for the rest of the year, making the full-year average 60% behind historical averages.

The Financial Accounting Standards Board (FASB) lifted a huge burden from MBS and ABS investors' shoulders last week by exempting those bonds from mark to market accounting requirements under FAS 155. Industry participants were concerned that FAS 155 contained accounting implications that would affect market liquidity and spreads for those securities.

Mortgage loans originated to U.S. borrowers this year and in late 2005 - marked by an environment of slowing home price appreciation and desperate mortgage brokers - are not performing as well as those loans originated in 2003 and 2004. In fact, subprime mortgage loans originated in the first quarter of this year were experiencing the level of foreclosures within six to seven months that loans originated in 2004 had at 13 months, Bear Stearns analysts Gyan Sinha and Mary Ann Thomas said last week.

Market sources expected new issuance to total slightly more than $15 billion last week, thanks in no small part to continued demand for HEL tranches that will feed into CDO transactions. By press time, about a third of expected issuance had hit the market and priced.

As the U.S. mortgage market continues its ugly decline, Countrywide Financial Corp. is looking to find profits in other lines of business - particularly those within capital markets. In a move that would further align it with the vertical integration strategy currently underway among Wall Street investment banks, the Calabasas, Calif.-based mega-lender may be looking to acquire an asset management business. This move is coupled with continuing to extend its U.S. Treasurys primary dealership to include derivatives and futures.

As the search for yield continues, both U.S. and European investors are seeking new kinds of exposure to CDO equity tranches. Zero-coupon equity and rated equity pieces in investment grade corporate synthetic transactions are on the rise in Europe, Derivative Fitch noted last week. The rating agency said it has received several inquiries from investors wishing to structure rated equity transactions.