If things feel a little slower than last year in terms of U.S. market CDO pricings, that's because they are. While the European market continues to churn out deals, the current status of the U.S. market is, in a word, sluggish.
U.S. market issuance over the first half of 2003 is down 20% from the same period last year, according to Moody's Investors Service.
"I don't have the quantative numbers directly in front of me, but I can say the pace feels slower than last year," said one vice president of a Wall Street CDO group.
While researchers from JPMorgan Securities noted the first week of August was "one of the busiest of the year with nine deals totaling $10.2 billion," five were European market based. Summertime slowdown is certainly one factor, and not all that unusual for the market, though recent data figures allude to a slower market overall.
Last week Moody's issued its second quarter CDO market wrap-up report. The agency said it rated 37 U.S. CDOs in Q2 2003, down from 44 for the same quarter last year. And while rated volume of $12.5 billion was more than double from the first-quarter 2003, it was still 18% short of the second quarter 2002 figure. In short, Moody's is predicting 2003 will fall short of 2002 total volume. The rating agency said that most of the deals it rated were motivated by arbitrage. Of the balance-sheet CDOs, most were not traditional securitizations of syndicated loans but were either middle-market loan transactions or for hedging of structured security holdings
One ABS CDO investor suggested continued FIN 46 concerns have created an "up-in-the-air" feeling regarding consolidations and variable interest entities, as the market attempts to sort out long-term ramifications. The Financial Accounting Standards Board met last week to discuss certain issues - some relating directly to CDOs - though any sort of cut out for collateral manager fees seems prohibitively narrow at best (see related story p. 3).
Other sources indicated issuance is probably more hampered by the lack of arbitrage incentive enshrouding many CDO sectors.