In its first half review, which will be released this week, Moody's Investors Service is anticipating an improved credit environment for the second half, which the rating agency is calling a mixed blessing for the asset-backed market, in terms of issuance, that is.

While an improvement in credit quality is positive for ABS transactions - especially those with sub-bonds exposed to non-prime consumer credit - an improved economic landscape could spell an end to rate cuts, which, according to Moody's, was a major driver of the first-half's record issuance.

"We're not likely to have six rate cuts in the second half," said Kent Becker, an analyst at Moody's and author of the report's overview.

Moody's pegs U.S. public issuance at $128 billion for the first half, compared to $106 billion for the same period last year.

Bankruptcy reform...

Last week Credit Suisse First Boston released an extensive report analyzing the well publicized pending bankruptcy reform, a series of recently passed bills (HR 333 and S 420) which aim to lessen the frequency of bankruptcy abuse, and make debtors more liable.

Of course, the passage, still pending the President's approval, would have numerous implications on the U.S. asset-backed market, as it would make it more difficult for borrowers to walk away from debt.

CSFB notes that existing studies estimate additional profits in the credit card industry could range between $1 billion and $4 billion (depending on the study).

"It's a little bit tricky, because some of these studies were done as the bills were being revised," said Rod Dubitsky, analyst at CSFB.

The goal of the reform is to push more filers ones that would have traditionally ended up Chapter 7 - into Chapter 13, which requires the filer to implement a repayment plan.

To determine the fate of the filer, the legislation proposes a "means test", comprised of two parts. According to studies CSFB references, the first test, which is based on median income, would send 80% of filers into Chapter 7. The remaining 20% would be subject to an "ability-to-pay" test.

This test is reliant in part on disposable income, which raises questions as to how disposable income is calculated, and how it could be manipulated by deductions.

CSFB also notes that the reform gives true sale treatment to securitized assets in bankruptcy (also see ASR 3/12/01, p. 1).

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