ABS

After increasing the estimated construction costs for building an emissions control facility at a West Virginia plant, and adding a novel twist to the deal's structure, Allegheny Energy, Inc. received approval from the Public Service Commission of West Virginia to use asset-backed securities to finance the project.

Ready to learn a thing or two about how to expand their corners of the ABS business, industry professionals are swarming around Las Vegas this week for the ASF 2007'.

To stay competitive, electronic gadgets in our day and age have to be multi-dimensional. It's not enough for a cell phone to merely make calls, it must also play music, send e-mails, take pictures and perform myriad other tasks. If it does only one thing, it will fail.

After much talk, it appears that Cairn Capital will produce the first managed CPDO, to be sold by arranger JPMorgan Chase & Co. The deal is among the latest in a string of variations on ABN Amro's flagship CPDO product, Surf, which debuted last Fall. While a number of investors are still scratching their heads as to how, exactly, the structure works, arrangers are cooking up plans for all sorts of CPDOs, including managed deals, those that reference the ABX indices and those that reference bespoke portfolios.

The majority of outstanding mezzanine CDOs will experience HEL downgrades within their portfolios this year, Lehman Brothers researchers wrote in a report last week. Given an environment with 5% home price appreciation, roughly 90% of mezzanine CDOs originated between 2003 and 2006 will have exposure to HEL bonds due for a rating agency downgrade, the researchers said. What's more, one-fifth of outstanding mezzanine CDOs have 10% or more exposure to the expected downgrades, and in a flat HPA scenario, roughly 30% of outstanding CDOs would have a 10% or higher exposure.

During its last full workweek of January, the ABS market started off by displaying a full spectrum of sentiments. On one extreme end, investors remained wary of spread levels to enter into ABX trades after the rollout of the third ABX.HE index, series 07-1.Trading on that rollout started on Jan. 19. Conversely, issuers were eager to exhibit their wares ahead of the popular ABS 2007 industry conference now underway in Las Vegas.

U.S. small business loan ABS will likely undergo higher delinquencies for the first half of 2007, because of shifting economic conditions and credit concerns.

By David Glehan, director, and Amanda Hopkins, rating specialist, Standard & Poor's

The consumer credit outlook for 2007 looks benign. Although mortgage delinquencies and foreclosures are rising, they are up from exceptionally depressed levels. There was little room for them to go anywhere but higher.

Home equity loan downgrades could increase by three to four times this year compared with the second half of 2006, Lehman Brothers said last week in a report. Such an increase would mean as many as 1,500 bonds could be at risk for a downgrade, given a 0% to 5% national rate of home price appreciation.

A handful of managers are tweaking RMBS deal structures in order to achieve a Moody's Investors Service triple-A rating on super senior tranches they would not be able to obtain otherwise. The structural nuances essentially burrow the so-called senior support tranche into a more subordinated position in order to protect the super senior tranche. At least for the deals that have been rated so far, the senior support tranche and other senior interest would not receive a triple-A rating per Moody's rating methodology, but that's not to say the manager could not shop around for one.

A phrase repeated so often it sounds like a broken record - that the firm managing a CDO makes a difference in its overall performance - must be falling on deaf ears, some said, as more and more new managers set up shop. While a firm classified as "new" could be run by an experienced staff, the sheer number of them entering the market has equity investors looking for a way to gauge performance.

By Jennifer San Cartier, senior director, ABS, and Stephanie Petosa, managing director, operational risk, Fitch Ratings

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 11,324.6 1 13.3 20 JP Morgan 11,150.3 2 13.1 23 Wachovia Corp 10,658.0 3 12.4 18 Barclays Capital 9,681.6 4 11.4 15 Deutsche Bank AG 7,784.8 5 9.2 17 Banc of America Securities LLC 6,637.5 6 7.8 10 Credit Suisse 4,066.8 7 4.8 8 HSBC Holdings PLC 3,971.7 8 4.7 5 Royal Bank of Scotland Group 3,644.0 9 4.3 8 Morgan Stanley 3,554.6 10 4.2 7 Industry Total 85,059.8 - 100.0 90 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 50,073.6 1 14.9 65 Citigroup 36,607.6 2 10.9 66 Deutsche Bank AG 30,674.1 3 9.2 63 Wachovia Corp 23,697.9 4 7.1 54 Credit Suisse 22,623.0 5 6.8 34 UBS 22,303.8 6 6.7 65 Bear Stearns & Co Inc 21,557.6 7 6.4 41 Banc of America Securities LLC 20,730.3 8 6.2 52 Morgan Stanley 19,666.3 9 5.9 71 JP Morgan 15,359.1 10 4.6 37 Industry Total 335,048.1 - 100.0 671 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 Banc of America Securities LLC 20,720.6 1 30.9 29 Citigroup 11,982.0 2 17.8 18 JP Morgan 11,859.7 3 17.7 25 Deutsche Bank AG 4,624.9 4 6.9 13 Morgan Stanley 4,055.3 5 6.0 5 Barclays Capital 3,373.8 6 5.0 8 HSBC Holdings PLC 2,749.9 7 4.1 3 Credit Suisse 2,285.0 8 3.4 10 Merrill Lynch 1,645.0 9 2.5 6 Wachovia Corp 1,124.9 10 1.8 4 Industry Total 67,148.7 - 100.0 101 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 2,125.0 1 18.4 3 Deutsche Bank AG 1,750.0 2 15.1 3 Banc of America Securities LLC 1,554.5 3 13.4 3 Barclays Capital 1,409.5 4 12.2 2 ABN AMRO 1,250.0 5* 10.8 2 Lehman Brothers 1,250.0 5* 10.8 2 Royal Bank of Scotland Group 1,000.0 7 8.7 2 Merrill Lynch 925.0 8 8.0 2 Citigroup 300.0 9 2.6 1 Industry Total 11,564.0 - 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 Lehman Brothers 68,450.3 1 11.0 166 Countrywide Securities Corp 66,904.1 2 10.8 109 Royal Bank of Scotland Group 63,037.2 3 10.2 114 Citigroup 40,622.2 4 6.6 91 Deutsche Bank AG 40,551.2 5 6.5 95 Bear Stearns & Co Inc 38,958.3 6 6.3 98 Credit Suisse 37,228.5 7 6.0 89 Merrill Lynch 37,120.4 8 6.0 55 Morgan Stanley 35,061.6 9 5.7 36 JP Morgan 32,214.8 10 5.2 72 Industry Total 619,892.6 - 100.0 1,133 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 14,994.0 1 22.6 15 Deutsche Bank AG 9,079.8 2 13.7 13 Credit Suisse 6,548.1 3 9.9 10 Banc of America Securities LLC 5,301.7 4 8.0 7 Wachovia Corp 4,871.9 5 7.3 4 Morgan Stanley 4,248.4 6 6.4 6 Goldman Sachs & Co 4,150.9 7 6.2 6 Lehman Brothers 3,873.7 8 5.8 3 Merrill Lynch 3,819.9 9 5.8 4 RBC Capital Markets 2,179.0 10 3.3 4 Industry Total 66,469.7 - 100.0 47 Source: Thomson Financial

auto ABS 10% credit card ABS 8% catatrophe bonds 0% enterprise finance 0% equipment ABS 2% real estate ABS 70% structured settlements 0% student loan ABS 8% trade receivables 1% utilities ABS 0%