Anxious investors holding RMBS and CDO assets are now expressing their fears in the ABCP sector, according to market sources. Late last week, word circulated that ABCP conduits administered by American Home Mortgage Investment Corp. and Aladdin Capital Management, among others were having trouble rolling new commercial paper, further arresting the flow of liquidity to an already floundering market. American Home Mortgage administers Broadhollow Funding LLC, a single-seller vehicle with about $5 billion in ABCP outstanding, according to one market source. Both of Aladdin Capital's vehicles, Altius Funding and Citius Funding buy CDOs. All of these vehicles are partially supported, which means that they rely on the value of the underlying assets to some extent for liquidity support. In such an illiquid environment, where all but the most seasoned investors are fretfully holding onto their cash, the inability to sell RMBS and CDO assets could spell big trouble for administrators and dealers. "CP everywhere is having a problem," said one investor. "Anything that funds mortgages, CDOs, synthetics - investors are just saying they do not want it anymore. The dealers end up stuck with it." By press time last week, neither American Home Mortgage nor Aladdin was available for comment.
Barclays Capital recruited Sharon Greenberg for its RMBS research
group, market sources say. Greenberg was a vice president of ABS research at Credit Suisse. Slated to start at Barclays in about three weeks, Greenberg will apparently focus on Alt-A RMBS products, according to market sources. Barclays, which did not return calls before press time, did not confirm word of Greenberg's arrival.
McDermott Will & Emery appoints Kate Lamburn as a partner in the London securitization and structured finance group. Lamburn joins McDermott from London-based Ashurst, where she was formerly a partner in the securities and structured finance group and subsequently director of professional development for that group. She was previously a partner at the London office of Weil, Gotshal & Manges. Kate focuses on cash and synthetic CDOs and other structured debt products.
Calyon hired Jim Siracusa as global head of debt capital markets and securitization. He was previously a co-head of client coverage and a member of the executive and operating committees for global banking at Dresdner Kleinwort. Based in London, Siracusa will report to Guy Laffineur, global head of fixed income.
Chicago-based Sidley Austin promoted three partners in its London office. All three partners - Jonathan Edge, Theresa Kradjian and Paul Matthews - are structured finance and securitization experts. In all, 36 lawyers were made partners, a slight dip from last year's record 37. The Chicago headquarters gained the most new partners with 11, followed by the firm's New York office with seven. Overseas locations also had their share of promotions. Aside from the three new London partners, offices in Tokyo, Hong Kong, Frankfurt and Brussels each gained a new partner.
Citigroup Global Markets is developing a different approach to valuing the ABX indices using market-implied write-downs, projected credit enhancements and cumulative losses derived from the delinquency pipeline. Previously, the bank said it relied on prepayment and default projections under different home price appreciation scenarios to assign a value to the indices. The bank's analysis indicated that 2007-1 and 2006-2 BBB-' pricing still has some downside from their $38 to $40 handle market price. Under reasonable pipeline buildup and roll-rate assumptions, 2007-1 BBB-'s could settle around $30 to $32, and the 2006-2 BBB-'s could settle around $30, the bank said.
American Capital Strategies closed its first commercial real estate CDO, ACAS CRE CDO 2007-1. The deal is backed by 121 subordinate tranches of bonds issued by 22 commercial MBS trusts. The firm purchased the CMBS bonds starting in December 2005. Its cost basis in these bonds totals $642 million, with a principal balance of $1.2 billion. The firm sold the full amount of these bonds to ACAS CRE CDO. Third-party investors in the ACAS CRE CDO purchased triple-A' through single-A-minus' bonds for a total purchase price of $411 million with a principal balance of $412 million, the firm said. American Capital purchased investment-grade, non-investment-grade and preferred shares of the ACAS CRE CDO for a total purchase price of $215 million with a principal balance of $763 million. Part of American Capital's $215 million purchase is a $121 million investment in the triple-B-plus' bonds through the preferred shares, which were priced to yield a 15% compounded annual return over the life of the investment after expected losses, not including the asset management fees, the firm said. A wholly-owned alternative asset management company of American Capital manages ACAS CRE CDO in exchange for an annual senior management fee of 7.5 basis points and a subordinate fee of 7.5 basis points on $1.2 billion of principal amount, or $1.8 million annual total, the firm said.
Bear Stearns fueled further market concern over the bank's investments in subprime mortgages. Last week, the firm halted redemptions on a hedge fund that invested in approximately $850 million in mortgages. A spokesman for Bear Stearns said that the fund would not be shut down based on the poor market environment in which to sell assets. The fund has less than 0.5% of its portfolio in subprime, the spokesman said.
Standard & Poor's placed the ratings of 33 tranches from 10 U.S. cash flow and hybrid ABS CDOs on CreditWatch with negative implications last week, affecting $1.025 billion in total issuance. The affected tranches were collateralized mainly by U.S. RMBS backed by first-lien subprime mortgage collateral. The rating agency said 147 tranche ratings from 44 cash flow and hybrid CDO transactions are currently on CreditWatch with negative implications. These tranches represent an issuance amount of $5.7 billion.
SNL Financial's real estate securities unit extended its coverage of North American real estate securities to include companies in Europe and Asia-Pacific in order to "address the new wave of real estate securitization gathering momentum across the globe," the firm said. Its electronic real estate database now includes companies in Austria, Belgium, Denmark, Finland, France, Germany, Britain, Greece, Italy, Netherlands, Norway, Poland, Spain, Sweden and Switzerland. Its Asia-Pacific coverage includes Australia, Hong Kong, Japan, New Zealand and Singapore. Investors will be able obtain data, view source documents and convert currency sums in reports into a variety of other currencies, online and in real time, the firm said.
Fitch Ratings said that the first six months of 2007 had a noticeably weaker rating performance for U.S. structured finance compared with the same period last year. Through June 2007, the agency counted 1,183 upgrades and 815 downgrades. While the number of upgrades is almost identical to 2006's 1,825 upgrades, the story is not the same for downgrades. In 2007, downgrades have almost doubled the 377 in the same period last year. Most of the deterioration was due to U.S. subprime RMBS, with some spillover into the Alt-A arena, Fitch said. The rating agency noted that term ABS performance has been resilient. However, Fitch expects subprime consumer ABS segments, such as credit cards and auto loans, to be under more pressure later in 2007. The agency also expects U.S. CMBS rating performance to remain strong for the remainder of 2007. But while delinquencies have continued to decline, loan defaults may begin to increase as recently issued transactions contain larger interest-only concentrations and higher amounts of debt, the rating agency said.
Moody's Investors Service placed on review for possible downgrade certain certificates from 10 second-lien subprime transactions issued in 2007. The certificates were placed on review because their current credit enhancement levels, which include excess spread, may be too low compared with current projected losses, Moody's said. Issuers affected include Ace Securities Corp., American Home Mortgage Investment Trust, Bear Stearns Mortgage Funding Trust, C-Bass Mortgage Loan Asset-Backed Certificates, Greenpoint Mortgage Funding Trust, Nomura Asset Acceptance Corp. Alternative Loan Trust, SACO I Trust and Terwin Mortgage Trust. Moody's updated its methodology for rating closed-end second-lien transactions in April 2007 but noted that the transactions placed on review were rated before the change in methodology was implemented.
The Information Management Network's third annual "Subprime ABS: Where Are We Heading?" conference will run from Sept.19 to Sept. 20 in Las Vegas. The conference will include educational sessions on such topics as legislative and accounting initiatives and focus on investor perspectives about issues in the subprime sector.
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