ABS

Investor demand might not have forced issuers to bring a lot of deals to the ABS market last week, as new pricings totaled just $11 billion. Traders and other market professionals, however, said the deals' warm reception kept spreads reigned in tightly across all sectors.

Recent leveraged loan spread widening could be a boon to new-issue CLO investors - as long as the widening is in fact due to market technicals. Bear Stearns analysts said as much last week, pointing out that widening in leveraged loan spreads could be owed mainly to supply and demand mismatches. On the fringes, some of the pull-back among certain investors could be due to loosened loan covenants, analysts said. But credit fundamentals within the U.S. loan market are widely anticipated to remain strong for several years - opening the door for equity investors to take ample opportunity of the record high return-on-equity in the space.

The release of standard documentation for trading CDO credit default swaps in early June was a major step toward transforming what has historically been a long-only market - and in the weeks following, the sector seems to be chugging along.

The Senate Banking Committee last Wednesday passed a version of legislation that aims to give the Securities and Exchange Commission explicit authority to regulate credit rating agencies. The Credit Rating Agency Reform Act of 2006, aims to increase competitiveness in the industry, address conflicts of interest, and if necessary, counter abusive practices.

As pricing finally begins to rise on institutional loans, CLO managers are frenetically scrambling to issue larger funds in order to invest in and take advantage of these juicier spreads. Jumping on board with one such new fund is The Carlyle Group, which announced the close of its eighth US high yield fund, Carlyle High Yield Partners VIII (CHYP VIII), last Wednesday. The new $525 million fund, which utilizes a traditional CLO structure, will invest a minimum of 95% of its assets in bank loans with a maximum of 5% in high yield bonds. Carlyle's leveraged finance group now manages $5.6 billion in assets.

New York Life Investment Management (NYLIM) announced last week that it closed a $618 million collateralized loan obligation, NYLIM Flatiron CLO 2006. The new CLO, underwritten by Citigroup, and managed by NYLIM's fixed income investors group, marks the sixth collateralized debt obligation for NYLIM.

JPMorgan Securities is preparing to bring to the market this month the second CDO backed by Attentus Management Group. The $512 million Attentus CDO II will be backed by a mix of trust preferred securities, secured loans and subordinated debt issued by REITs (a little more then 50%), real estate operating companies (about 30%) as well as home builders. The portfolio also has about an 11% bucket for CMBS.

Fitch Ratings announced on Aug. 2 the launch of Stability Scores for synthetic CDOs. The scores indicate the propensity of a tranche to retain its original rating over a period of one year from closing, thus providing a better understanding of the prospective stability of the ratings.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 6,351.4 1 14.9 14 Wachovia Corp 6,106.4 2 14.3 11 Citigroup 6,027.5 3 14.1 12 Deutsche Bank AG 5,729.1 4 13.4 10 Barclays Capital 3,626.9 5 8.5 6 HSBC Holdings PLC 2,389.3 6 5.6 3 Royal Bank of Scotland Group 2,169.3 7 5.1 5 Banc of America Securities LLC 1,925.9 8 4.5 3 Merrill Lynch & Co Inc 1,847.5 9 4.3 4 Goldman Sachs & Co 1,701.7 10 4.0 3 Industry Total 42,728.3 - 100.0 50 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 20,959.6 1 13.4 28 Citigroup 19,408.6 2 12.4 33 Deutsche Bank AG 16,561.1 3 10.6 22 Banc of America Securities LLC 11,303.1 4 7.2 26 Credit Suisse 10,506.7 5 6.7 19 Bear Stearns & Co Inc 10,154.2 6 6.5 21 UBS 9,676.6 7 6.2 40 Wachovia Corp 9,013.1 8 5.7 20 Royal Bank of Scotland Group 6,499.7 9 4.1 8 Morgan Stanley 6,308.8 10 4.0 29 Industry Total 156,851.0 - 100.0 308 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 10,235.0 1 25.8 13 Citigroup 8,982.0 2 22.6 13 JP Morgan 7,824.7 3 19.7 18 Deutsche Bank AG 2,924.9 4 7.4 8 Morgan Stanley 2,289.1 5 5.8 4 Barclays Capital 2,260.1 6 5.7 6 Credit Suisse 1,735.1 7 4.4 8 ABN AMRO 1,000.0 8 2.5 5 HSBC Holdings PLC 1,000.0 8 2.5 1 Merrill Lynch & Co Inc 500.0 10 1.3 2 Industry Total 39,700.8 - 100.0 58 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 Deutsche Bank AG 1,250.0 1 19.7 2 ABN AMRO 1,250.0 1 19.7 2 Lehman Brothers 1,250.0 1 19.7 2 Royal Bank of Scotland Group 1,000.0 4 15.8 2 Banc of America Securities LLC 1,000.0 4 15.8 2 Merrill Lynch & Co Inc 300.0 6 4.7 1 Citigroup 300.0 6 4.7 1 Industry Total 6,350.0 - 100.0 5 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 35,663.7 1 10.7 81 Royal Bank of Scotland Group 30,204.5 2 9.1 75 Countrywide Securities Corp 30,132.0 3 9.1 49 Morgan Stanley 27,249.1 4 8.2 28 Credit Suisse 26,016.6 5 7.8 70 Deutsche Bank AG 22,889.2 6 6.9 52 Bear Stearns & Co Inc 20,093.7 7 6.0 65 Merrill Lynch & Co Inc 19,954.9 8 6.0 33 Goldman Sachs & Co 19,000.7 9 5.7 40 JP Morgan 16,194.9 10 4.9 38 Industry Total 332,872.9 - 100.0 655 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 7,390.8 1 19.3 10 Deutsche Bank AG 6,320.7 2 16.5 9 Merrill Lynch & Co Inc 3,420.1 3 8.9 3 Credit Suisse 3,306.5 4 8.6 6 Goldman Sachs & Co 2,941.3 5 7.7 4 Lehman Brothers 2,834.1 6 7.4 2 Morgan Stanley 2,568.2 7 6.7 3 Banc of America Securities LLC 2,550.5 8 6.6 4 RBC Capital Markets 2,179.0 9 5.7 4 Wachovia Corp 1,610.0 10 4.2 1 Industry Total 38,396.5 - 100.0 30 Source: Thomson Financial

auto ABS 10% credit card ABS 8% enterprise finance 0% equipment ABS 2% real estate ABS 71% structured settlements 0% student loan ABS 8% trade receivables 1%

Whether large or small, banks have never had a lot of financial incentive to issue student loan ABS paper, but some market players say the shifting tides of the student loan business might change that.

As second quarter earnings data from mortgage lenders began to trickle into the market last week - giving some insight for the secondary market as to how the lenders, and their loans, are faring amid a slowing housing market - results and outlooks so far seem to be a bit of a mixed bag. Perhaps because, as IndyMac Bancorp's Chairman and Chief Executive Michael Perry put it last week, "we are laying off the bulk of that credit risk into the secondary market."

Countrywide Financial Corp. plans to enter the reverse mortgage market by yearend. The mortgage giant intends to dominate the sector once it gets its feet wet, according to Countrywide's Chairman and Chief Executive Angelo Mozilo. This is a strategy that could mean a sizable increase in reverse mortgages floating about the secondary market. The Calabasas, Calif.-based lender was driven to enter the sector because of the product's growing secondary market acceptance as well as its growing pool of potential customers, who are homeowners aged 62 and higher.

The ABS market had a busy week, one wherein the home equity loan market shared the limelight with the auto loan, credit card and business loan sectors. While ABS professionals expected the market to clear up to $15 billion in deals for the week, issuers and underwriters completed about $9 billion by Thursday afternoon.

None of the big three rating agencies have downgraded any securities issued by Bayview Financial, a privately held mortgage finance company based in Miami, in light of the realization that its securitizations were rated using what was at times erroneous loan information. A senior salesperson and limited partner in charge of Bayview's residential loan acquisition sales force was fired in late March under allegations of altering credit information on loans he acquired for the company in order to earn higher commissions, according to the company. The employee primarily increased borrower credit scores, but also changed property types and occupancy codes, among other items, the firm disclosed.