ABS

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 4,462.2 1 21.9 6 Deutsche Bank AG 2,801.0 2 13.7 3 Credit Suisse 2,466.6 3 12.1 4 Merrill Lynch & Co Inc 2,301.0 4 11.3 2 Banc of America Securities LLC 2,027.7 5 9.9 3 Goldman Sachs & Co 1,803.8 6 8.8 2 Lehman Brothers 1,284.7 7 6.3 1 UBS 998.7 8 4.9 2 Morgan Stanley 768.2 9 3.8 1 SunTrust Banks 382.5 10 1.9 1 Industry Total 20,402.3 - 100.0 14 Source: Thomson Financial

auto ABS 9% credit card ABS 9% enterprise finance 0% equipment ABS 2% real estate ABS 72% structured settlements 0% student loan ABS 9% trade receivables 0%

As the implications of Hurricane Katrina start to crystallize, the insurance sector is emerging as one of the hardest hit industries, while the RMBS and non-mortgage ABS sectors have not withstood sharp significant losses as well. Katrina-induced losses to the insurance sector were the steepest in history, more than those suffered from 9/11, Hurricane Andrew or the 1994 Northridge earthquake in California, according to Laura Porter, an analyst at Fitch Ratings.

Dubai is set to become the gateway into Middle Eastern securitizations as a number of European-based firms take up residence in the emirate, eagerly exploring the capital market opportunities in that region.

The $1 trillion ABCP market shows no signs of slowing down, with its low cost of financing and short-term flexibility. Still, professionals in the sector wonder if the surging repurchase agreement market, also known as repos, might one day take a significant bite out of commercial paper business.

About $10 billion in new securitization deals hit the market last week as of press time, slightly short of the $15 billion that market sources had predicted. After very heavy ABS deal issuance in the first quarter, production in April was light to moderate, said one trader.

Cohen Brothers Financial subsidiary Strategos Capital Management is gearing up to manage its first mezzanine structured-finance CDO. The $601.6 million Preferred Funding I is expected to come to market late next month via Merrill Lynch. The deal will be backed almost entirely by residential mortgage-backed securities and will have up to a 40% bucket for synthetic securities.

There is no question that Ballantyne Re, a $2.1 billion securitization backed by future flows of insurance premiums, is an innovative structure that taps ABS market savvy to meet regulatory compliance. The real uncertainty lies in whether it can be repeated often enough to become a booming market.

Never a hot sector to begin with, dealer floorplan ABS has gotten even colder this year. Issuance from the asset class is creeping along at a strikingly slow pace, possibly because of stricter investor requirements on some of the bonds, and higher deal execution costs, say some ABS professionals.

Perhaps not surprisingly, CLO managers last year found themselves dipping into the same pot of securities in order to ramp up their deals at a higher rate than in recent years, according to an analysis by JPMorgan Securities released last week.

Swelling volumes of U.S. CDO issuance have drawn more intense regulatory scrutiny and raised the need for standardization across both cash and synthetic sectors, market participants say. In the cash flow segment alone, CDO volume is up 65%, to $55.1 billion, so far this year compared to last year's record numbers. And as the credit derivatives market catapults growth within the CDO sector, more communication, and some say more regulations, are needed.

KKR Financial, a San Francisco-based specialty finance real estate investment trust is launching an asset-backed commercial paper program to chase yield and continue to fund its mortgage loan business. The vehicle, called KKR Atlantic Funding, will issue up to $5 billion in secured liquidity notes.

Drawing on reserve funds has become more common among U.K. subprime RMBS transactions, with two deals siphoning cash just this month and others likely to follow.

The home equity loan sector back in the early part of the millennia - along with other segments of the capital markets - grew comfortable with a historically low interest rate environment, structuring their deals accordingly. Fast forward to the present, in the face of rising interest rates, some of those deals might face interest shortfalls that hit their available funds caps thus exposing them to greater basis risk, JPMorgan Securities analysts say.

The asset securitization market did not exactly come roaring back last week from its spring break. While market professionals hoped that the market would produce about $14 billion in new issuance by week's end, it actually came in at about $5.2 billion by press time.

While speculation continues to swirl about a pullback in the housing market, the homebuilder market is seeing slower top-line growth, ample unsecured credit agreement capacities and large cash balances. Combined, these factors have driven down debt issuance among home builders, and the trend is likely to continue, said Standard & Poor's.

More trust preferred securities-backed CDOs are expected to come to the market this year - with the number of rated deals topping $30 billion this month. Furthermore, these upcoming transactions are expected to contain a wider range of assets compared to older deals.

Last week Polaris Securities became the latest Taiwanese entity to complete a collateralized bond obligation. As with the previous issues, Polaris' NT$12.2 billion ($376.8 million) deal was an attempt to address the drop in value of structured bonds in Taiwan that has hit bond funds in the last 18 months (ASR, 10/31/05).

Bit by bit, more light is beginning to shine through what is arguably the most opaque corner of the CDO market - equity tranches. Helping matters are some initiatives from market players including Moody's Investors Service's recent announcement that it would begin tracking CDO equity return data. Furthermore, Wachovia Securities - whose analysts were concerned that Moody's data reflected bleaker-than-realistic returns - took that information a step further in order to ascertain more precise figures.

Commerzbank kicked off the season for small and medium enterprises (SMEs) loan CDOs with its CB Mezzcap deal, which priced at the beginning of April. It was closely followed a week later by a transaction from HSBC Trinkhaus & Burkhart. On the heels of these two transactions, market sources say there are several more CDOs of this type expected to come to market later this year.