ABS

The second quarter of 2004 saw a 30% spike in U.S. CDO volume and a smaller number of downgrades compared to years past, noted Moody's Investors Service. The rating agency issued 43 downgrades in the quarter, a sizeable improvement compared with the 80-downgrade-per-quarter average in 2003.

The SEC received more than 40 comment letters in response to its proposal. In addition, the SEC included a number of older letters in the file. The letters are available on the SEC's website.

Year to date as of 08/05 Term (days) 07/30 08/02 08/03 08/04 08/05 1-week

NEW YORK - The U.S. regulator's eligibility criteria for ABCP liquidity may be less of a minefield for arbitrage conduits than previously anticipated, depending largely on the U.S. regulators' implementation of Basel II, according to speakers and chatter among attendees at last week's seminar on the topic, hosted by the ABCP group at Credit Suisse First Boston.

Fresh off the heels of the second-quarter synthetic auto loan securitization, CARSS Finance 2004-A, Banc of America Securities structured the next step of auto loan ABS, although it's unlikely to be copied by The Street. With the inaugural Global Execution Auto Receivables Securitization (GEARS) trust, BofA is offering - almost exclusively to European investors - the double-A through double-B plus rated cashflows of $2 billion in prime auto loans, originated by Bank of America, N.A.

The criteria for CDO league tables will change this month as Thomson Financial unveils six new tables in its second quarter wrap-up, anticipated this week or next. Not since their inception have CDO league tables garnered such attention and the speculation is that a shakeup in the underwriter rankings will follow.

Despite concerns over rising interest rates and the pervasive threat of another terrorist attack, analysts at Fitch Ratings outlined a broadly favorable view of ABS performance in 2Q04, and are forecasting continued growth in several sectors for the remainder of the year.

The U.S ABS primary market had another solid week pricing close to $10 billion in new issue as of press time Thursday evening. Real estate ABS made up roughly half of that volume.

An interesting and unexpected provision included in the Basel II guidelines could effectively nullify previously recognized synthetic risk transfers, if the protection seller is a special purpose entity.

With the addition of an Ambac wrap, last week's 12b-1 fee securitization from Citibank, N.A. - the sector's only remaining issuer - experienced wider distribution and tighter pricing than any previous mutual fund fee ABS. The $133 million Hedged Mutual Fund Fee Trust series 2004-2 deal, with an eight-year final maturity and 2.8-year average life, priced via Citigroup Global Markets at 25 basis points over one-month Libor - 110 basis points tighter than April's double-A rated senior/subordinated deal.

If you were stranded on a desert island with nothing to do but analyze CLOs, which would you prefer to examine - default risk or prepayment data?

At last week's meeting, the Financial Accounting Standards Board reiterated many previously indicated stances to be incorporated into the second exposure draft of the amendment to FAS 140. In a "surprise move" - described as such in an informal meeting recap from Marty Rosenblatt of Deloitte & Touche - the Board decided that MBS generated by swapping whole loans for GSE-guaranteed mortgages into a QSPE must be accounted for at fair value with gains or losses recognized, Rosenblatt said.

Lehman Brothers priced its first transaction backed by tobacco litigation fees stemming from the Master Settlement Agreement last month. Until now, this sector had been the exclusive province of Deutsche Bank Securities.

The continual search for yield across the credit markets has driven new investor groups into Europe's traditionally clubby and private mezzanine market. Larger deal sizes, increased liquidity and an ever-more active secondary market have all helped tempt private equity funds, institutional investors and, inevitably, hedge funds into the mezzanine market this year. But for some, notably the large mezzanine players, the entry of new groups into the asset class threatens the safety of the asset class and some say could lead to losses further down the line.

Thomson Financial plans to unveil six new CDO league tables this month. They include the following:

IP Innovations Financial Services, a guarantor of loans secured by intellectual property, has closed a deal on a $15 million revolving credit facility with Cambridge Display Technology, marking IPI's second transaction.

2004 2003 2002 ABS (Public and 144A) 451,537 320,659 257,996 ABS (Public and 144A excluding CDOs) 413,536 295,871 227,284 ABS (Public Only) 354,526 260,965 202,382 ABS (144A Only) 97,011 59,694 55,613 Non-Agency MBS 186,326 192,568 122,798 Agency MBS 198,032 416,143 290,703 CMBS 48,847 39,147 28,371 Source: Thomson Financial

Year to date as of 07/29 Term (days) 07/23 07/26 07/27 07/28 07/29 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 7,692.8 1 18.6 12 JP Morgan 7,574.6 2 18.3 14 Deutsche Bank AG 5,344.5 3 12.9 9 Barclays Capital 3,323.5 4 8.0 8 Wachovia Corp 3,158.9 5 7.6 4 Credit Suisse First Boston 3,120.2 6 7.5 7 Banc of America Securities LLC 3,105.2 7 7.5 6 Merrill Lynch & Co Inc 2,002.4 8 4.8 3 Morgan Stanley 1,920.1 9 4.6 5 Lehman Brothers 1,470.7 10 3.6 3 Industry Total 41,391.1 - 100.0 48 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch & Co Inc 6,070.7 1 16.0 11 UBS 3,917.0 2 10.3 6 Deutsche Bank AG 3,613.9 3 9.5 9 Morgan Stanley 3,528.5 4 9.3 9 Wachovia Corp 3,379.9 5 8.9 14 Citigroup 2,548.2 6 6.7 11 Credit Suisse First Boston 1,808.4 7 4.8 4 JP Morgan 1,671.7 8 4.4 4 Lehman Brothers 1,643.5 9 4.3 7 Goldman Sachs & Co 1,595.5 10 4.2 3 Industry Total 38,001.1 - 100.0 105 Source: Thomson Financial