CDOs/CLOs

Investors looking to exploit the newly volatile home equity ABS sector are expected to be among the catalysts for the growth in a relatively new CDO structure, combining both funded and unfunded assets and liabilities, to hit the U.S. market.

Imagine the embarrassment of a synthetic CDO manager when, forced to purchase the par amount of a referenced asset gone bad, also has to suck up nearly the entire amount of the deal's excess credit enhancement in order to fund the purchase, consequently causing a rash of downgrades.

Capital One Financial Corp. scooped the credit card industry last week by being the first to provide full FICO score distributions for its credit card trust as will be required on Jan. 1, when Securities & Exchange Commission Regulation AB goes into full effect.

Independent finance company AmeriCredit Corp. took a step into the prime lending world last week with the announcement that it would purchase Bay View Acceptance Corp., a prime and specialized auto loan originator.

The U.S. ABS primary market swelled to roughly $20 billion with only four full days of issuance due to the Veteran's Day holiday.

In what has come to be an annual event, J.G. Wentworth, a Bryn Mawr, Pa.-based specialty finance company, has issued its fifth private Rule 144A deal backed by structured settlement obligations in five years. The $227 million deal, tagged 321 Henderson Receivables I Trust 2005-A, is the largest of the company's four other deals and is led by Deutsche Bank Securities. Officials from Deutsche Bank could not be reached for comment, nor could officials from J.G. Wentworth.

First time issuer SBA Communications Corp. has a $405 million securitization in the market, led by Lehman Brothers, which is expected to close by the end of the week. The deal, though backed by leases on wireless communications towers, has a CMBS-like structure and is issued out of the SBA CMBS-1 Depositor LLC trust.

The latest rate reduction bond offering from Houston-based CenterPoint Energy Inc. was being shown throughout Southeast Asia last week in the hopes that bankers can drum-up demand for the deal and for future Texas RRB issuance. Representatives from joint-lead managers Credit Suisse First Boston, Lehman Brothers and RBS Greenwich Capital, as well as financial advisor Saber Partners were in the midst of a whirlwind tour that included Beijing, Hong Kong, Singapore and Tokyo last week, showing off CenterPoint's $1.85 billion offering that is due to hit the market before the end of the year.

The CDO community is the fastest growing customer base in line for a relatively new analytic system offered by Moody's Investors Service - so-called market-implied ratings. In short, the system tracks the gap between what the secondary market assesses as the chance of a security defaulting, versus the rating agency's own credit rating for the bond. And while the tool is only applicable to the cash and synthetic corporate bond sectors and it is not used by Moody's analysts as a precursor for ratings changes per se, the principle behind the system has "profound implications for the financial market," said Moody's Managing Director David Munves, who invented the system.

Displaying an increasingly bearish sentiment on the home equity ABS sector, JPMorgan Securities analysts last week, calling the mix of expected slowing home price appreciation and simultaneously heightened short-term borrowing costs an "indeed ugly" mix, lowered its bias last week to neutral on the asset class.