CDOs/CLOs

Only in the hottest ABS market in recent history would $9 billion be considered a slow week, but compared to the rest of the month, it seems as if the market slowed a bit last week. The Federal Open Market Committee meeting resulted in another quarter-point increase in the target federal funds rate to 3.25% and, while expected, when combined with an upcoming holiday weekend, it may have been enough to keep issuers out of the market.

When it comes to relative value in student loan pools, analysts with Lehman Brothers say the more seasoned the better. Student loan prepayment rates, driven by consolidation, are expected to skyrocket for 2Q05 as the interest rate on Stafford loans was reset upward by 193 basis points last Friday, and the U.S. Department of Education recently allowed borrowers to consolidate loans while still in school.

Banc of America Securities broke into the auto whole loan sector last week with an $890 million deal and emerged as the newest member of a cadre of investment banks that have moved into the sector in recent years. The deal, tagged BASAT 2005-WF1, consists of four triple-A senior tranches and $38 million of 2.86-year subordinated bonds, rated A3' by Moody's investors Service and A+' by Standard & Poor's. The triple-B rated C class was rated only by S&P.

Moody's Investors Service is currently implementing changes to its asset correlation model within cashflow structured finance CDOs backed by ABS, RMBS, CMBS, and other CDO tranches, said Yvonne Fu, a senior vice president in the rating agency's derivatives group. Moody's changed its approach for modeling correlations in synthetic transactions in the latter part of last year, she added.

Securities offering reform legislation passed unanimously by the Securities and Exchange Commission last Wednesday that aims to broaden the ability for written information sharing prior to the final prospectus was the adoption of a rule that will expose Wall Street firms and issuers to liability based on a determination of the completeness and accuracy of information an investor receives at the time he or she purchases a security. The rule, dating back to 1933, was most recently in the public eye when Google Inc.'s initial public offering was nearly derailed following an article featuring its founders that appeared in Playboy Magazine. And while the liberalization of information sharing may be good for equity IPOs, the liabilities that come along with it could be a hindrance to the ABS market, which commonly maintains a pre-investment dialogue between issuers, underwriters and investors in order to structure a deal's underlying collateral and cash flows, for example, prior to the issuance of a final prospectus.

Subordinate home equity spreads widened this week, as some speculated that investors began to grow nervous of risk involved in the deals, and a number of analysts released sour outlooks on residential mortgage performance, particularly in the subprime market. Some deals in secondary trading are trading south of where they've been in recent months, on the anticipation that the price buyers are willing to pay is headed further in the same direction, according to industry sources.

Just a few weeks after its expansion into aviation finance, Guggenheim Capital Markets, LLC recently announced the hire of Ronald Iervolino as managing director of the company's structured finance unit and Steven Finnk as senior vice president in the trading group. The move is a reflection of Guggenheim's continued efforts to expand its presence in the capital markets.

Year to date as of 06/30 Term (days) 06/24 06/27 06/28 06/29 06/30 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 6,499.6 2 13.8 11 Merrill Lynch & Co Inc 5,884.5 3 12.5 8 Deutsche Bank AG 5,641.7 4 12.0 10 Barclays Capital 4,302.5 5 9.1 8 Credit Suisse First Boston 4,111.9 6 8.7 8 Wachovia Corp 3,712.5 7 7.9 8 Banc of America Securities LLC 3,433.1 8 7.3 7 Goldman Sachs & Co 1,841.0 9 3.9 2 HSBC Holdings PLC 1,826.8 10 3.9 3 Industry Total 47,096.0 - 100.0 45 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 8,536.2 2 14.1 18 Lehman Brothers 4,315.7 3 7.1 14 Morgan Stanley 4,049.6 4 6.7 17 UBS 3,673.9 5 6.1 9 Wachovia Corp 3,359.3 6 5.6 8 Goldman Sachs & Co 3,107.0 7 5.1 4 Bear Stearns & Co Inc 2,915.2 8 4.8 7 Groupe Caisses d'Epargne 2,442.0 9 4.0 3 Credit Suisse First Boston 2,239.0 10 3.7 5 Industry Total 60,410.5 - 100.0 147 Source: Thomson Financial