LOS ANGELES - Despite the phenomenal surge in asset-backed securities credit derivative issuance, some West Coast market participants say they are wary to jump into either the single name or index markets until the sector can offer more stability. While some are choosing to dip a foot in, others are staying out completely.
Several attendees at the American Securitization Forum's first-ever Los Angeles Sunset Seminar held here last week said they were either wary or unable to use ABS CDS as a hedging tool due to "unquantifiable" risk involved in the market. A number of CDS contracts, for example, have ended up in arbitration or in legal proceedings (see article Page 1) and the ABS CDS market has yet to agree on standard documentation. Employees of GE Consumer Finance subprime mortgage unit WMC Mortgage Co., for example, were interested in gathering more information about using ABS CDS as a way to hedge the company's mortgage pipeline - but the company's uncertainty on the swaps has so far kept it from entering into any agreements, they said.