ABS

Rev Cred/Home Eq 48% Non-Jumbo Mtg Ln 15% Auto Loans/Recs 9% Student Loans 7% Credit Card Rec 6% Other 15%

Investors holding DVI Inc. medical equipment lease ABS got their first bit of good news in roughly one year last week, as one of the most prominent lease obligors agreed to repay the $60 million it owes the trust. RadNet Management, the primary operating subsidiary of Primedex Inc. - which represented cashflows in each of the nine outstanding transactions - reported last Monday that it would repay its lease obligations at the previously agreed-upon terms.

While double-B rated tranches have become a more regular feature of the mortgage ABS landscape in recent months, it is the brave few who look to venture that far down the capital structure. However, some investors may even be ready to take the plunge into single-B territory - provided the price is right - and issuers are looking to oblige.

The U.S. ABS primary market had a sluggish week with just over $5 billion having priced heading into Friday's session. Business is expected to remain fairly slow throughout traditionally languid August, a reality likely to continue through the upcoming Republican National Convention.

BellaVista Capital, a real estate finance company in Santa Monica, Calif., has registered with the Securities and Exchange Commission for $1 billion in asset-backed securities, signaling the imminent arrival of a new player in the ABS market.

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: