ABS

Ambac Financial Group has become the first AAA'-rated monoline to be downgraded by a rating agency, igniting a wave of rating actions for bonds wrapped by the insurer.

Talk of an economic rebound during a week that saw the Federal Reserve ramp up its efforts to stave off a recession may seem a bit premature, but some market participants are not ruling out the return of jumbo prime loans later this year.

New plans for a state-guaranteed securitization and potentially retained equity or windfall taxation are being discussed as measures to save Northern Rock. This is yet another addition to the long list of proposals to come to the rescue of the British mortgage lender without imposing too much taxes on U.K. citizens.

The head of Deutsche Bank's structured finance research team, Ganesh Rajendra, started 2008 on a hopeful note. He held a conference recently at the Deutsche Bank offices in London titled A New Dawn After the Storm. Despite his display of optimism for the European securitization market, Rajendra said that the dark clouds have yet to clear completely.

Bad news continues to hit the ABS sector. Nonetheless, in these times of economic stress, securitization could still be used as a viable financing tool. But how can investors be lured back?

What a difference a year makes. This is clearly shown by the significant drop in securitization volume in 4Q07 compared with 4Q06. Industry totals for 4Q07 public ABS transactions only reached $82 billion, according to the ASR Scorecards database. This is less than half of fourth quarter 2006's $188.8 billion total.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 1,578.8 1 27.933 3 Wachovia Securities 1,125.0 2 19.904 2 Goldman Sachs 744.5 3 13.172 1 RBS Greenwich Capital 744.5 3 13.172 1 Credit Suisse 625.0 5 11.058 1 ABN AMRO 572.5 6 10.129 1 Banc of America Securities 261.8 7 4.632 1 Industry Total 5,652.1 - 100.0 5 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Industry Total 0.0 - 100.0 0 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup Global Markets 3,400.0 1 31.898 2 JPMorgan Securities 2,396.0 2 22.478 2 Banc of America Securities 2,100.0 3 19.701 3 Deutsche Bank Securities 896.0 4 8.406 1 Credit Suisse 896.0 4 8.406 1 Wachovia Securities 501.0 6 4.7 1 Barclays Capital 450.0 7 4.222 1 Industry Total 10,659.1 - 100.0 8 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Lehman Brothers 1,715.6 1 100.0 2 Industry Total 1,715.6 - 100.0 2 Source: ASR Scorecard database

Negative headlines persist. But despite the carnage, European securitization market players should start recognizing the signs of healing and get on board. Clearly, patience is key since the reparations needed to restore the market are likely to take some time.

It was a volatile week for Wall Street, as several banks delivered a punishing round of poor earnings reports, exacerbated by steep writedowns linked to subprime mortgage holdings. Accordingly, the securitization market hit a pothole on the road back to steady issuance.

Although not much activity is brewing in the ABCP market, Calyon managed to identify enough investor interest in the U.S. to support a newly created subsidiary of LMA, called LMA Americas. The new subsidiary will be able to issue dollar-denominated commercial paper.

The mood was calm at The Loan Syndications and Trading Association's annual membership meeting last Tuesday, despite expectations of an uncertain year ahead for CLOs.

The covered bond market took a huge leap forward in projected volume last week, when two new issuers tapped the capital markets for about 5.4 billion ($7.9 billion in financing for residential mortgage portfolios.

The mortgage industry modified roughly 54,000 loans and began formal repayment plans with an additional 183,000 borrowers, according to a study released by the Mortgage Bankers Association (MBA) last week.

Rising mortgage delinquencies mean new business for scratch and dent lender Kondaur Capital Corp. With the expectation of a recession in 2008, depreciating real estate prices should lead to rising defaults and foreclosures until 2011. This would mean more buying opportunities in this troubled sector, said Jon Daurio, chairman and chief executive officer of Kondaur.

Arranger Unicredit Aton International hopes the anxiety of Western European investors will ease soon enough for them to consider a slice of a short-term cash CLO of Russian SMEs that closed at the end of December. "We are holding a small piece on a repo basis," said Dmitry Kozodoy, director of Aton's securitization department.

The battle for Northern Rock still isn't over, and a quick-fix solution is now nothing but a dream.

U.K. buy-to-let lender Paragon has announced a GBP287 million ($563 million) rights issue, which would repay the company's GBP280 million working capital facility due on Feb. 27. Aside from improving its financial situation, the firm can also avoid the penalty interest rates that its financiers were proposing through this offering.