ABS

With the ever-expanding ABS market, the growth of new ABS products and asset classes will always be an important topic. At the American Securitization Forum annual meeting to be held next week, there would be a session devoted entirely to emerging markets and products. Paul Burke, a managing director at Ambac Assurance Corp., will be moderating the discussion that would focus on such emerging assets as life insurance or triple-X transactions as well as the growth of securitization in Latin America, Asia and Eastern Europe.

AEP Texas Central Co., which is looking to raise as much as $1.7 billion through securitization, filed what it called a unanimous settlement agreement with the Public Utility Commission of Texas. The accord will hold them - and all other affected parties - to any securitization financing order that the commissioners decide on later this year.

A bit of ageing becomes the prime auto ABS sector, according to Fitch Ratings. With 11 upgrades, the asset class dominated positive ratings movement activity for U.S. term ABS in April.

Overcollateralization, excess spread and the presence of cash capitalization accounts (CCAs) on certain deals provide ample protection against prepayment losses on private student loan ABS deals, Lehman Brothers found after a test analysis on a Sallie Mae transaction.

Fitch Ratings upgraded one class of notes issued by collateralized bond obligation CAM CBO I last week. The class B notes totaling approximately $20.8 million were upgraded to BB from B+; the approximately $32.2 million in C notes remain rated at C.

Swap counterparties in deals rated by Moody's Investors Service may see the amount of collateral they're required to post decrease, thanks to new guidelines the rating agency plans to adopt.

Having gotten an earful from Wall Street about a proposal that, if implemented, could massively increase financial institutions' regulatory obligations for any structured deal that fits under a broad umbrella category of "complex structured finance transactions" (CSFTs), five federal agencies announced earlier this month that they had greatly revised their proposed criteria.

With the launch of its third CDO of CDOs, the $400 million Connecticut Value Structured Credit CDO III, Babson Capital Management has made yet another mark in what remains a niche market of the structured finance universe.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 6,627.6 1 24.1 13 JP Morgan 3,828.6 2 13.9 10 Wachovia Corp 2,832.0 3 10.3 6 Deutsche Bank AG 2,602.6 4 9.5 8 Merrill Lynch & Co Inc 1,847.5 5 6.7 4 Barclays Capital 1,705.7 6 6.2 4 Credit Suisse 1,550.0 7 5.6 3 Royal Bank of Scotland Group 1,479.3 8 5.4 3 Banc of America Securities LLC 1,374.9 9 5.0 1 Goldman Sachs & Co 868.7 10 3.2 2 Industry Total 27,478.3 - 100.0 33 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 12,433.7 1 15.4 20 Merrill Lynch & Co Inc 11,300.8 2 14.0 16 Banc of America Securities LLC 7,206.9 3 8.9 18 Deutsche Bank AG 6,810.1 4 8.4 11 UBS 5,489.0 5 6.8 15 Bear Stearns & Co Inc 4,922.6 6 6.1 10 Credit Suisse 4,317.9 7 5.3 8 Morgan Stanley 4,165.0 8 5.2 16 Royal Bank of Scotland Group 3,245.9 9 4.0 6 Wachovia Corp 3,213.6 10 4.0 8 Industry Total 80,907.7 - 100.0 161 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 7,239.0 1 25.9 11 Citigroup 6,982.0 2 24.9 12 JP Morgan 6,228.7 3 22.3 13 Deutsche Bank AG 2,549.9 4 9.1 7 Morgan Stanley 1,829.0 5 6.5 2 Barclays Capital 1,209.0 6 4.3 4 Credit Suisse 625.0 7 2.2 2 ABN AMRO 500.0 8 1.8 1 Wachovia Corp 328.9 9 1.2 2 Lehman Brothers 250.0 10 0.9 1 Industry Total 27,995.5 - 100.0 42 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 Morgan Stanley 21,516.4 1 11.0 22 Lehman Brothers 20,105.2 2 10.2 47 Credit Suisse 19,161.9 3 9.8 39 Countrywide Securities Corp 15,001.3 4 7.6 17 Deutsche Bank AG 13,951.3 5 7.1 25 Bear Stearns & Co Inc 12,692.0 6 6.5 34 Royal Bank of Scotland Group 12,487.1 7 6.4 18 JP Morgan 12,301.5 8 6.3 26 Merrill Lynch & Co Inc 11,781.7 9 6.0 16 Citigroup 10,769.8 10 5.5 27 Industry Total 196,455.6 - 100.0 374 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 4,793.6 1 20.1 7 Deutsche Bank AG 3,323.8 2 13.9 4 Banc of America Securities LLC 2,550.5 3 10.7 4 Credit Suisse 2,466.6 4 10.4 4 Merrill Lynch & Co Inc 2,301.0 5 9.7 2 Goldman Sachs & Co 1,803.8 6 7.6 2 Morgan Stanley 1,537.4 7 6.5 2 Lehman Brothers 1,284.7 8 5.4 1 UBS 998.7 9 4.2 2 JP Morgan 769.3 10 3.2 1 Industry Total 23,840.7 - 100.0 17 Source: Thomson Financial

auto ABS 9% credit card ABS 9% enterprise finance 0% equipment ABS 1% real estate ABS 71% structured settlements 1% student loan ABS 9% trade receivables 1%

What is being called a complete misunderstanding by a district court judge of a credit derivatives contract is causing some to question the clarity of credit default swap documentation. The Southern District Court of New York in February ruled that the French bank Societe Generale, as a protection seller in a CDS transaction, should pay the buyer and plaintiff Aon Financial Products, a division of Aon Corp., $10.1 million despite its failure to deliver bonds to SG. According to industry professionals, the decision was based on an entirely separate derivatives contract and viewed SG as more of a guarantor than a CDS party. SG filed an appeal to the decision in March, and oral argument is expected to begin in late August or September.

In another sign of a booming CDO market, a handful of credit derivative product companies (DPCs) are cropping up and offering credit enhancement products similar to those offered by monoline bond insurers.

LOS ANGELES - Despite the phenomenal surge in asset-backed securities credit derivative issuance, some West Coast market participants say they are wary to jump into either the single name or index markets until the sector can offer more stability. While some are choosing to dip a foot in, others are staying out completely.

LOS ANGELES - As industry representatives work to form a standardized framework for trading credit default swaps that reference CDOs, perhaps the biggest roadblock to completion is how to handle the write-down provision of the swaps. A CDO is not immediately written down following a credit event, making it difficult for parties betting on the deal's performance to either collect or make payments in a timely matter, said speakers at the Asset Securitization Forum's Sunset Seminar held here last week.

Despite damp and gloomy weather for much of last week, the ABS market appeared to get ready for the official start of summer. Issuance picked up the pace last week, with $11 billion in offerings at press time.

Fitch Ratings last week released for comment new interest rates stress criteria for structured finance transactions involving USD Libor. The key difference between the proposed methodology and the way Fitch currently applies interest rate stress criteria to ratings is a switch from historical data to the use of forward-looking swap market data - an information source widely employed across the structured finance market.