Recognizing that 2007 was an unusual year, and that highlighting individual transactions would not convey the ethos of a tumultuous year, the ASR staff has decided to veer away from our usual practice of naming notable deals. Aside from the comparatively scarce deal flow in 2H07, 2007 was notable not because of innovative transactions, but it will go down in history as a year of reckoning for all industry participants.
Yes, those specifically involved with the subprime RMBS sector were duly humbled, and their actions were widely characterized as obdurate. More importantly, the events of 2007 emboldened the whole securitization market to question previously undisputed notions. Is a triple-A security absolutely secure? Are rating agencies industry watchdogs or do they merely cater to the issuers that pay their salaries? Are subordination levels enough to protect investors? Do bond insurers have enough capital to back their investments?
Even iconic figures in securitization fell victim to the subprime fiasco. Who could forget the failure of the two United Capital Markets hedge funds that brought ABS maverick John Devaney down, although maybe not out? Of course, as a sign of a more pervasive problem, Bear Stearns also announced the essential collapse of two of its mighty funds.
Of course, the industry must have seen these coming after one of the biggest subprime issuers, Fremont Investment & Loan, saw its 2006 vintage bonds become the first to get hit with a negative rating action. Fremont's failure was one of the first real signs of subprime trouble. Eventually, Fremont and its fellow top-three subprime lender, New Century Financial Corp., exited the subprime business. But these mishaps are nothing compared to the possibility of a Countrywide Financial Corp. bankruptcy, rumors of which were spreading around the market just last week.
The subprime problem had engulfed other securitization sectors - CDOs and ABCP - and broadened its geographic reach to Europe and the emerging markets. These events made it impossible for ASR to just focus on individual deals.
In each of the following nuggets, ASR looks at events, players, initiatives, deals and sectors that shaped last year and determined the course of 2008. It is a trip down memory lane, but might also serve as a market allegory of lessons learned.
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