CDOs/CLOs

A slew of multisector CDO repacks has hit the new issue market over the last two weeks. A closer look reveals the collateral has overwhelmingly been real estate-related, no surprise given the pace at which the home equity market has been churning.

A holiday-shortened trading week, coupled with the typical slow start to a new quarter, left the ABS primary market nearly devoid of activity last week. Just $3.15 billion priced, including an EETC, while an additional $3.8 billion was readied for when the market returns from the Independence Day holiday.

In last week's CDO Insight, UBS Warburg researcher Douglas Lucas highlighted the "CDO strangles" trade, where an investor takes a long position in a CDO sub tranche and shorts the seniors.

The message from overseas is clear: murky waters still cloud Europe's CDO market, which has a strong taste for synthetics.

As the execution of traditional, fully tranched synthetic CDOs continues to be challenging, investment banks are reporting increased appetite for single-tranche CDOs (STCDO), which allow investors to choose custom risk/reward profiles.

The new spate of negative headlines surrounding specialty medical equipment leasing concern DVI Inc. spread further to its outstanding ABS last week. Two of three rating agencies downgraded DVI's ABS after the Securities & Exchange Commission deemed its most recent quarterly filing deficient after Deloitte & Touche resigned as auditor (see ASR 6/16/03). Questions of whether the programmatic issuer would soon be in technical default on its unsecured debt obligations, leading to a servicing transfer, prompted both Fitch Ratings and Moody's Investors Service to place all the outstanding ABS each agency had rated on watch for a downgrade. Standard & Poor's, meanwhile, remains confident in the current ratings.

2003 2002 2001 ABS (Public and 144A) 277,044 231,988 192,552 ABS (Public and 144A excluding CDOs) 260,802 203,706 166,342 ABS (Public Only) 232,496 183,060 139,772 ABS (144A Only) 44,548 48,928 52,780 Non-Agency MBS 168,217 108,740 89,671 Agency MBS 323,471 251,853 129,870 CMBS 36,226 23,996 29,792 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 JP Morgan 4,444.3 1 14.5 6 Deutsche Bank AG 3,770.1 2 12.3 7 Citigroup 3,705.3 3 12.1 5 BANK ONE Corp 3,347.8 4 10.9 6 Credit Suisse First Boston 3,129.1 5 10.2 7 Banc of America Securities LLC 2,447.8 6 8.0 5 Barclays Capital 2,400.8 7 7.8 5 Morgan Stanley 2,265.7 8 7.4 4 Merrill Lynch & Co Inc 1,635.4 9 5.3 3 Goldman Sachs & Co 1,289.4 10 4.2 3 Industry Total 30,660.9 - 100.0 38 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 Credit Suisse First Boston 2,978.7 1 18.3 9 Deutsche Bank AG 2,064.1 2 12.7 5 Wachovia Corp 1,959.4 3 12.1 6 Bear Stearns & Co Inc 1,673.2 4 10.3 6 Citigroup 1,547.6 5 9.5 4 Morgan Stanley 1,031.4 6 6.4 4 UBS 900.0 7 5.5 2 Banc of America Securities LLC 884.6 8 5.5 4 Goldman Sachs & Co 829.2 9 5.1 3 JP Morgan 697.6 10 4.3 2 Industry Total 16,241.2 - 100.0 51 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 10,421.7 1 26.1 16 BANK ONE Corp 8,026.8 2 20.1 14 JP Morgan 6,078.6 3 15.2 11 Barclays Capital 3,834.7 4 9.6 7 Morgan Stanley 3,579.5 5 9.0 4 Banc of America Securities LLC 2,537.3 6 6.4 8 Deutsche Bank AG 2,084.6 7 5.2 7 Credit Suisse First Boston 1,294.2 8 3.2 4 Lehman Brothers 823.1 9 2.1 3 Wachovia Corp 673.0 10 1.7 3 Industry Total 39,903.4 - 100.0 65 Source: Thomson Financial