A handful of arrangers are working with rating agencies to bring CDOs of CDO equity to the market, according to industry sources. The development comes on the heels of a number of structures that aim to redistribute the high yielding, but risky, CDO equity. "We are seeing an increased number of proposals for CDOs of CDO equity," said Mia Koo, a managing director at Derivative Fitch. The generally unrated and illiquid nature of CDO equity, along with a lack of historical performance data, present challenges toward achieving a rating - but they are certainly not insurmountable. The idea is similar in concept to a CDO squared structure, but repackages only CDO equity tranches. Proposals have ranged from just-off-the-run to seasoned CDO equity collateral.
Hedge fund Highland Financial Holdings is preparing to manage its first CDO. Credit Suisse is bringing the $1.1 billion Citation High Grade ABS CDO I. The deal is backed by a portfolio of RMBS and HE ABS, with up to a 17.5% bucket for negative amortization securities, as long as they are rated double-A-minus. The triple-A rated A-2 tranche of the deal priced at 43 basis points over three-month Libor, while the triple-B rated D tranche priced at 345 basis points over.
Denver-based asset manager Chotin Asset Management has extended Executive Vice President Zachary Pashel's duties to full responsibility of the company's structured finance group. Pashel had been co-head of the group along with John Grant, who left the firm about a month ago. Chotin also hired Matt Krump as an investment and surveillance analyst. Krump was an investment analyst at Smith Breeden Associates.
Markit Capital Partners this week announced it had acquired ABS deal reporting system ABSReports. Markit will integrate the company's data into its European ABS pricing service. According to Markit, the company is the only electronic reporting service to focus exclusively on the performance of European ABS, MBS and CDO markets. The service allows users to monitor and analyze such public deal information as original servicer reports, deal documentation and securities pricing. It came with an archive of more than 1,500 European transactions.
Coventree Inc. hired David Allan and Doug Onofrychuk to head its capital and administration business units, respectively. The hires were designed to free up Geoff Cornish, former head of the business units, to concentrate on "business development opportunities," according to the company. Prior to Coventree, David was global head of asset securitization and credit structuring at CIBC World Markets. Onofrychuk comes from OmniRIM Solutions Inc., where he was chief operating officer.
Evergreen Investments, the asset management division of Wachovia Corp., is set to acquire a majority interest in European Credit Management Ltd. (ECM), a privately held, London-based fixed income investment management firm. Announced last week, the agreement will create a combined organization with over $280 billion in assets under management and will serve more than 2,400 institutional clients and 3 million individual shareholders. ECM will continue to operate under the ECM brand and will retain its management team led by chief executive officer Steven Blakey and chief investment officer Stephen Zinser. Day-to-day portfolio management responsibilities will continue to be under the control of the existing ECM investment team. The deal is anticipated to close this quarter.
Mortgage Guaranty Insurance Corp., the largest private mortgage insurer in the U.S., reported a drop in fourth-quarter earnings, citing a 3% decline in new premiums and a 9% rise in losses. Total losses for 2006 were up 11% from last year - to $613.6 million - despite a slight decline in the percent of MGIC insured loans classified as delinquent. The percent of subprime, bulk and "alt-A-minus" loans delinquent, however, rose.
Bayview Financial LP promoted Bob Repass to managing director of its seller finance unit, Bayview First Funding LLC. Prior to Bayview, Repass worked at Associates First Capital Corp., as well as Metropolitan Mortgage and Securities Co. of Spokane. Bayview also promoted Rick Callihan to vice president and sales manager.
The Mortgage Bankers Association commissioned the University of Florida Professor's Mark Flannery to write a study called Likely Effects of Basel II Capital Standards on Competition within the 1-4 Family Residential Mortgage Industry. This paper outlines the implications of the new standards, which was written to align banking firms' required capital with the risk of their portfolios. The study's aim was to explain the underlying issues and survey the available research that has been produced to date. The report discusses implications of the implementation of Basel II, including shifting the comparative advantage in financing high-quality mortgage assets toward larger, advanced internal ratings based (AIRB) firms, resulting in AIRB banks holding relatively more mortgage assets under Basel II. Another impact is that for AIRB banks, the regulatory capital charges for high-quality mortgages will fall below those of the GSEs, creating downward pressure on the GSEs' guaranty fees. The AIRB banks may also be able to compete with the GSEs by writing credit guarantees for loans owned by smaller, non-adopting institutions. The study also said that it seems likely that a bifurcated, Basel II capital standard will encourage the AIRB banks to acquire non-adoptors.
ACA Capital Holdings disclosed last week that during the fourth quarter of 2006 its asset management subsidiary, ACA Management LLC, closed ACA CLO 2006-2, a $300 million CLO and ACA ABS 2006-2, a $750 million ABS CDO. ACA Capital invested in 10% or less of the equity tranches of these deals, which is equivalent to $2.3 million and $3.5 million in the equity of ACA CLO 2006-2 and ACA ABS 2006-2, respectively.
Standard & Poor's took rating actions on 52 European synthetic CDO tranches after running its December month-end synthetic rated overcollateralization figures. The rating agency placed ratings on 17 tranches on watch with negative implications, 17 on watch with positive implications and for 18 tranches, their rating watch negative status was removed, affirming the existing ratings.
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