CDOs/CLOs

The Structured Finance Committee of The Association of the Bar of the City of New York submitted a comment letter last week regarding proposed amendments to a Financial Accounting Standards Board rule on transfers of financial assets. The comment letter, the first from the newly formed committee, addresses proposed amendments to FASB's Statement of Financial Accounting Standards No. 140.

Loss severities in auto deals with high concentrations of trucks and SUVs could soon rise if demand for those vehicles continues weakening, according to Fitch Ratings analysts. In fact, recovery rates on defaulted truck and SUV loans are already starting to decline, thanks to high fuel prices and increased dealer incentives that have conspired to dampen used vehicle prices.

For the third week in a row, the U.S. ABS primary market has generated around $13 billion in new issues, as the market seems to have hit a robust autumn issuance pace.

San Francisco-based Pacific Gas & Electric Co. last week priced its second rate reduction transaction of the year, an $845 million offering via Barclays Capital, Citigroup Global Markets and Morgan Stanley as joint-lead underwriters. The deal is the second part of the company's $3 billion rate reduction bond, also called energy recovery bonds or stranded assets, issuance program authorized by the California Public Utility Commission last year.

Following a nearly one-year hiatus, Aames Investment Corp. will resume selling the majority of its mortgage originations to the secondary whole-loan market. The Los Angeles-based subprime mortgage lender last November reorganized under a REIT platform - a shift which required the accumulation of its now $4.2 billion investment portfolio in order to achieve its desired leverage.

In this era of ultra-tight spreads, a first lien loan with a 650 basis point over Libor coupon is like a diamond in the rough. This is why Delphi Corp.'s $1 billion term loan - which not only priced at Libor plus 650 basis points, but it was also sold at an original issue discount of 99.5 - broke to trade in the 103 context and traded up after the company filed for bankruptcy, as loan investors were expected to net a full recovery.

Fitch Ratings is in the process of changing its collateralized debt obligation asset manager rating approach, otherwise known as CAM, to incorporate synthetic CDO asset managers, the rating agency announced last week. The move comes as a result of increasing U.S. issuance of managed synthetic CDOs, as well as the occurrence of larger synthetic buckets within cashflow CDOs.

Another first-time commercial real estate CDO issuer has come to the market, with a $416 million deal expected to close Nov. 10. JER Investors Trust Inc., a publicly traded REIT, primarily buys and originates commercial mortgage-backed securities and loans, mezzanine loans, mortgage loan B-notes and net leased real estate investments.

Year to date as of 11/03 Term (days) 10/28 10/31 11/01 11/02 11/03 1-week

MBIA Insurance Corp. may still have to pay some insurance claims on ABS deals it wrapped for now-bankrupt student loan lender Student Finance Corp. after hundreds of millions of dollars of that company's student loans defaulted as a result of alleged fraud.