CDOs/CLOs

An American Bankers Association report that credit card delinquencies rose for the second quarter in a row raised some eyebrows in the ABS market last week. However, sources say the news may be much ado about nothing, and poses no immediate threat to credit card ABS performance.

The U.S. ABS primary market generated $11 billion in new issues last week as the market digested the impact of the milder-than-expected Hurricane Rita.

CenterPoint Energy's 2001 rate-reduction bond deal will likely not be affected by power outages to nearly half of the company's customers due to Hurricane Rita. Rating agency officials say the disaster likely falls within the credit enhancement cushions structured into the deal, and, at most, a slight adjustment to the deal's true-up mechanism will be required. "Overall I do not think it is a credit concern," said Weili Chen director in structured finance ratings at Standard & Poor's.

As not only Hurricane Katrina, but pockets of rapid home price appreciation have made "geographic concentration" a popular term lately among concerned secondary market participants, another factor - borrower type - has entered into the equation as areas where the non-traditional buyer prevails have, on average, become more pronounced. Subprime and Alt-A borrowers have become increasingly concentrated by geographic region in the last five years, and the top 10 MSAs with the highest concentration of non-agency borrowers has refreshed itself by half, according to RBS Greenwich Capital head of ABS and mortgage credit strategy Peter DiMartino.

Now that the first of the subprime ARM pools have reset into the heart of the Federal Reserve Board's quarter point rate increases, preliminary studies are showing them to be performing relatively well.

Following on the heels of the booming synthetic subprime mortgage market, CMBS are picking up steam within the synthetic sector. The collateral type is no longer just an afterthought in synthetic CDOs of asset-backed securities, as CMBS now constitutes larger portions, and at times the entirety, of synthetic CDO collateral in some deals, according to Richard Hrvatin, a senior analyst at Fitch Ratings.

West Penn Power Co. priced a $115 million Rule 144A stranded cost ABS last week with a structure never before used in the sector. The deal is structured so that bondholders are not paid interest or principal for three years, allowing West Penn to pay down outstanding Series 1999-A stranded cost securitization. Interest and principal will accrete, or accrue, during that time, and be paid over the remaining 18 months of the deal's life.

The American Securitization Forum last week selected the co-chairs of its program advisory committees for its ASF 2006 conference to be held this winter in Las Vegas. The six committees are in charge of planning the conference's agenda and content as well as picking speakers from among the industry. ASF Executive Director George Miller said he expects the full conference agenda to be available by mid-October.

Last week, as market participants returned full-force after the ABS East conference, the primary market generated a healthy $17 billion of new issuance. The board was populated with a fair mix of deals, including a stranded cost deal, in the robust week, even as the Federal Open Market Committee meeting and a new hurricane loomed.

In the immediate aftermath of Hurricane Katrina, home equity ABS may go through a short-term decrease in prepayments and delinquencies, according to researchers with Morgan Stanley. The researchers, using hurricane-ravaged Florida in 2004 as a guide, also plotted out four different scenarios based on the extent of the damage, which is not fully known, and its effect on subprime pools.