ABS

Subprime lender Novastar Financial Corp. took a $4 million loss in the fourth quarter related to its first CDO issuance. The loss was a public example of what a number of market participants are speculating about - that CDO issuers are being stung by mark-to-market losses on collateral sitting inside warehouse lines. While the Kansas City-based lender plans to move forward with plans for regular CDO issuance, the combination of volatility within cash home equity securities, wider CDO liabilities and the specter of more restrictive warehouse lines has some thinking the ABS CDO machine could be seeing a slowdown.

Moody's Investors Service is reviewing the Business Loan Express SBA Loan Trust 2001-1 transaction, and might downgrade the deal's affected securities.

New York - As the number of commercial real estate CDO transactions increases, analysts and investors are calling for improved surveillance in a market that still lacks transparency, according to speakers at the Information Management Network's Second Annual Real Estate CDO Symposium held here last week. To that end, ratings agencies are attempting to provide at least some information on this somewhat opaque market, beginning with the managers themselves.

Investment bankers dedicated to the financial institutions sector are making an extra effort to work closely with their debt capital markets teams in order to win a greater share of client business. In many instances reporting lines are getting switched around, ostensibly in the hope of spurring cooperation between the two groups.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 1,952.5 1 21.8 5 HSBC Holdings PLC 1,458.7 2 16.3 2 Barclays Capital 1,348.8 3 15.1 2 Banc of America Securities LLC 1,347.1 4 15.0 3 Wachovia Corp 1,210.7 5 13.5 3 Royal Bank of Scotland Group 599.3 6 6.7 1 Credit Suisse 550.0 7 6.1 1 Morgan Stanley 492.3 8 5.5 1 Industry Total 8,959.4 - 100.0 10 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 Citigroup 6,327.8 1 30.2 7 Barclays Capital 5,673.0 2 27.0 2 Bear Stearns & Co Inc 1,485.8 3 7.1 3 Deutsche Bank AG 1,403.3 4 6.7 4 Banc of America Securities LLC 1,269.0 5 6.1 2 Morgan Stanley 1,251.6 6 6.0 6 Lehman Brothers 965.0 7 4.6 2 JP Morgan 918.0 8 4.4 2 Goldman Sachs & Co 850.0 9 4.1 2 Wachovia Corp 845.5 10 4.0 2 Industry Total 20,988.9 - 100.0 31 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 JP Morgan 5,169.8 1 42.3 6 Banc of America Securities LLC 4,312.4 2 35.3 6 Wachovia Corp 962.5 3 7.9 3 Deutsche Bank AG 516.3 4 4.2 4 HSBC Holdings PLC 500.0 5* 4.1 1 Citigroup 500.0 5* 4.1 1 Lehman Brothers 266.3 7 2.2 3 Industry Total 12,227.2 - 100.0 20 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 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 Citigroup 6,325.4 1 15.0 11 Deutsche Bank AG 4,798.0 2 11.4 6 Merrill Lynch 3,666.8 3 8.7 4 Morgan Stanley 3,496.7 4 8.3 3 Lehman Brothers 3,277.9 5 7.8 8 Countrywide Securities Corp 3,142.0 6 7.5 2 Royal Bank of Scotland Group 2,669.7 7 6.3 4 Barclays Capital 2,492.2 8 5.9 7 Credit Suisse 2,365.2 9 5.6 3 Bear Stearns & Co Inc 2,011.5 10 4.8 6 Industry Total 42,160.3 - 100.0 59 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 Goldman Sachs & Co 1,380.7 1* 15.9 1 Lehman Brothers 1,380.7 1* 15.9 1 Banc of America Securities LLC 1,380.7 1* 15.9 1 Barclays Capital 1,343.3 4* 15.4 1 Morgan Stanley 1,343.3 4* 15.4 1 Credit Suisse 1,343.3 4* 15.4 1 JP Morgan 541.2 7 6.2 1 Industry Total 8,713.2 - 100.0 3 Source: Thomson Financial

auto ABS 15% credit card ABS 11% real estate ABS 67% student loan ABS 6%

Citing a "new paradigm" of subprime credit losses, Standard & Poor's last week stepped up its RMBS credit surveillance and simultaneously placed a negative CreditWatch on ratings of 18 subordinate classes from 11 RMBS deals issued in 2006 - both in the subprime and Alt-A sectors. According to S&P, the new rating methodology only affects how soon a deal is placed on rating CreditWatch negative. Previously, the rating agency would not place a deal on rating CreditWatch negative if there had not been a loss to the pool.

Several factors have kept annual student loan ABS issuance in the healthy area of $44 billion for the last few years, including government guarantees that act as enticing forms of credit enhancement for much of the sector's underlying collateral.

Hoping to capitalize on the various structured finance growth opportunities beyond securitization, seven ABS senior executives have left BMO Capital Markets to launch Six Degrees Capital Management (SDCM).

With the blessing of a triple-A rating from Moody's Investors Service, hedge fund Aladdin Capital Management became the proud parent of the newest credit derivative product company on the block. The road to obtaining a CDPC rating is a long, drawn out process, sources said - but demand certainly seems strong enough to obtain one.

Last week Federal Reserve Chairman Ben Bernanke managed to say something that both the stock market and the Treasurys market wanted to hear. There would be no pressing need to cut the target funds rate to spur economic expansion, and inflation was not yet out of hand.

In response to the inherent complexities of CRE CDO loans, Standard & Poor's released a report last week detailing how it evaluates companies who act as servicers and special servicers in this growing market segment. The report outlines the different servicing roles for CRE CDO transactions and the rating agency's method for evaluating each of them based on their specific responsibilities.

Lawmakers in the House recently proposed legislation designed to stop unethical practices that private student loan lenders sometimes undertake to gain preferred lender status with universities.

Last week, the American Securitization Forum filed a comment letter with the staff of the State of New York Banking Department regarding New York sales finance licenses, requesting that the department clarify the status under New York Banking Law Article 11-B of parties that acquire retail installment contracts in the secondary market.

Los Angeles-based asset management firm Trust Company of the West - the world's largest CDO manager - is preparing to become a classroom of sorts. In the coming months, TCW will open its doors to a group of Chinese investors interested in learning about CDO management so that they can emulate it. The arrangement will prove beneficial to TCW because the CDO manager, along with a growing number of U.S. CDO market participants, are touting the introduction of CDO technology to Asia's rapidly growing economies as one of this year's largest developments.