The pace of issuance of collateralized debt obligations for the first few months of 2000 has been relatively slow. Approximately 20 transactions have closed since January. This low number does not accurately reflect the dynamic nature of the market. As you can see from the chart [below], CDO issuance has been breaking records for the past few years. Total Moody's-rated volume of CDO securities is almost $280 billion. Despite the slow start to the year, the thirty-five member rating team at Moody's is currently reviewing 80 possible transactions. This may not result in 80 closed transactions, but it is fair to project that more than 40 will eventually make their way to the desks of investors. These numbers are significant when one considers that market sources estimate that CDOs currently hold as much as 17% of all high-yield bonds and 25% of leveraged loans.

The slow start for the year can be partially explained by the phenomenal issuance at the end of 1999. Concerns about Y2K and lack of market activity in the fourth quarter could not have been more wrong. December was the most active month ever for CDO issuance. This high level of issuance in effect accelerated some transactions which might otherwise have closed in early 2000. Other reasons include the dearth of supply of assets, especially in certain industries. Bankers also searched in vain early in the year for the adequate spread differential between assets and liabilities in order to place all elements of their CDO capital structure economically. This may have been compounded by banker vacations recovering from the 4th quarter issuance spree and bonus payouts! Other more profound causes would include investor concerns regarding CDO downgrades and the increase in high-yield default rates.

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