CDOs/CLOs

Rev Cred/Home Eq 48% Non-Jumbo Mtg Ln 15% Auto Loans/Recs 9% Student Loans 7% Credit Card Rec 6% Other 15%

In 2004 the asset-backed securities market swelled to $858 billion, and while 2005 is expected to be another solid year, analysts are already predicting a drop-off from that record shattering number. But even if the market soars to new heights again next year, 2004 will likely be billed as a breakout year for ABS that saw some old standards maintain their share of the market as underwriters, and saw some new faces stepped into the lead as well.

For most U.S. ABS issuers, 2004 was a year of prosperity. Driven by an overabundance of demand, many issuers repeatedly tapped the primary market, pricing transactions at steadily tightening spreads. For Metris Companies, however, 2004 was a year of uncertainty and rebirth.

For those that believe disclosure is the best disinfectant, the Securities and Exchange Commission's freshly minted asset-backed securities regulation, dubbed Reg AB, will be a welcome addition to the ABS marketplace. The rule is a mixed blessing for investors, who will likely see increased price tags on ABS while getting a more detailed look into those deals. For now, the rule has left issuers and servicers with a lot of new disclosures and liability to swallow.

Countrywide Home Loans Inc. was far and away the most prolific issuer of ABS last year, blasting out over $87 billion of supply. That number represents over 10% of the $858 billion ABS market last year, and is even more impressive considering Countrywide issued $15 billion in 2003. Last year also saw more investment banks creep into the forefront of ABS issuance, with Lehman Brothers, Credit Suisse Group and Morgan Stanley occupying the third, fourth and fifth slots, respectively.

The U.S. ABS primary market returned refreshed from the holiday break during the latter half of last week to price upwards of $13 billion as of Thursday evening. Both the home equity and auto sectors started the New Year off strong.

Swiss Reinsurance Co. is expected to bring a $245 million deal backed by the future profits on a life insurance portfolio via affiliate Swiss Re Capital Markets later this month, according to market sources. The deal marks one of the first such embedded value securitizations in the U.S., Moody's Investors Service analysts said.

Merrill Lynch ran away with the lead in the U.S. CDO league tables in 2004, according to data maintained by Thomson Financial, more than tripling its total underwriting volume from the previous year. With more than $15 billion of CDO product sold last year, Merrill controlled 17.2% of the market, up from the $4.8 billion and a 9.2% market share the underwriter sold in 2003, good for fourth place.

Although the technology used in Main Street Warehouse Funding Trust - a mortgage warehouse facility that provides short-term financing - has been seen before, it is the first time that an unrated, private entity such as AmeriQuest Mortgage Co. has made use of such a program as an integral part of its funding strategy.

It was a year of increased stability in terms of credit ratings for CDO market and subsequently, investors that previously exited the product returned in strong numbers in 2004. Thanks to the asset class' yieldlier environment - compared to comparable fixed-income products - hedge funds set up shop in the CDO market in noticeable numbers.