ABS

The pace of collateralized loan obligation (CLO) issuance is expected to remain strong in 2006, as long as leveraged loan issuance, liquidity, default rates, liability and underlying collateral spreads, and investor demand for CLO equity remain stable this year, according to market sources. The consensus is that issuance should be at least on par with or higher than 2005's CLO issuance levels.

As the U.S. economy expands and the Federal Reserve continues its gradual uptick on medium- to long-term interest rates, overall bond issuance is forecasted to decline 13.3% to $3.56 trillion in 2006, compared to $4.10 trillion in 2005, according to results from a recent Bond Market Association survey. However, while issuance is expected to fall in interest rate-sensitive sectors, it is anticipated to either stay steady or rise in others that are not driven by rate fluctuations.

Year to date as of 01/12 Term (days) 01/06 01/09 01/10 01/11 01/12 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 11,800.8 1 13.5 19 Banc of America Securities LLC 11,322.3 2 13.0 15 Wachovia Corp 10,417.0 3 11.9 18 Deutsche Bank AG 9,669.1 4 11.1 17 Citigroup 8,734.1 5 10.0 16 Merrill Lynch & Co Inc 8,193.7 6 9.4 11 Barclays Capital 6,698.2 7 7.7 12 Credit Suisse First Boston 5,791.5 8 6.6 12 Goldman Sachs & Co 3,564.1 9 4.1 4 HSBC Holdings PLC 3,334.4 10 3.8 5 Industry Total 87,387.4 - 100.0 87 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 25,021.1 1 16.2 37 Wachovia Corp 19,954.9 2 12.9 36 Citigroup 18,502.7 3 12.0 39 Morgan Stanley 11,615.5 4 7.5 40 Bear Stearns & Co Inc 10,252.7 5 6.6 30 Banc of America Securities LLC 9,853.0 6 6.4 34 Credit Suisse First Boston 9,262.5 7 6.0 20 Deutsche Bank AG 9,151.6 8 5.9 21 JP Morgan 8,483.1 9 5.5 23 UBS 7,171.1 10 4.6 18 Industry Total 154,623.7 - 100.0 360 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 16,690.0 1 25.9 29 Citigroup 12,371.9 2 19.2 28 Barclays Capital 6,988.9 3 10.8 19 Morgan Stanley 6,716.5 4 10.4 8 Deutsche Bank AG 5,051.2 5 7.8 22 Banc of America Securities LLC 4,709.1 6 7.3 17 Lehman Brothers 3,150.0 7 4.9 7 Credit Suisse First Boston 2,450.0 8 3.8 8 ABN AMRO 2,083.2 9 3.2 9 Royal Bank of Scotland Group 1,285.8 10 2.0 5 Industry Total 64,511.6 - 100.0 116 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 2,441.7 1 16.4 4 Deutsche Bank AG 2,418.6 2 16.3 4 Citigroup 1,712.0 3 11.5 2 ABN AMRO 1,643.6 4 11.1 3 Barclays Capital 1,492.5 5 10.1 2 Credit Suisse First Boston 1,243.6 6 8.4 2 Banc of America Securities LLC 750.0 7 5.1 1 Lehman Brothers 725.8 8* 4.9 1 JP Morgan 725.8 8* 4.9 1 HSBC Holdings PLC 566.7 10 3.8 1 Industry Total 14,850.2 - 100.0 14 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 Countrywide Securities Corp 77,304.4 1 11.1 88 Lehman Brothers 70,620.4 2 10.1 139 Bear Stearns & Co Inc 63,683.4 3 9.1 153 Credit Suisse First Boston 61,864.3 4 8.9 129 Royal Bank of Scotland Group 59,231.7 5 8.5 99 Morgan Stanley 47,304.2 6 6.8 60 Deutsche Bank AG 45,592.1 7 6.5 88 Merrill Lynch & Co Inc 39,683.7 8 5.7 59 Citigroup 38,852.0 9 5.6 100 Goldman Sachs & Co 31,607.7 10 4.5 43 Industry Total 698,575.3 - 100.0 1,332 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 13,940.9 1 22.5 18 Deutsche Bank AG 8,103.1 2 13.1 12 Banc of America Securities LLC 6,339.5 3 10.3 10 Merrill Lynch & Co Inc 6,208.7 4 10.0 7 Credit Suisse First Boston 5,376.3 5 8.7 8 Morgan Stanley 4,526.8 6 7.3 5 Goldman Sachs & Co 3,385.9 7 5.5 6 JP Morgan 3,010.4 8 4.9 6 Wachovia Corp 2,809.0 9 4.5 2 Lehman Brothers 2,705.7 10 4.4 3 Industry Total 61,835.9 - 100.0 49 Source: Thomson Financial

auto ABS 15% credit card ABS 9% global MBS 3% real estate ABS 59% student loan ABS 9% other 4%

The newest developments and dramatic growth within the single-name home equity ABS credit default swap market lies behind some of the biggest innovations within the structured finance CDO sector seen this year. These developments not only are responsible for some of the volatility seen of late, but also a new world of innovation. The ABS CDO market - often deemed the "CDO machine" by market participants, has been a huge patron of home equity ABS this year, with collateral portions in more than a few deals topping 80%.

Another record year is set to close in the European ABS market, with some estimates putting the 2005 tally close to the $350 billion mark. While most market players are expecting more growth from certain sectors in the market, the level of growth that has set the pace over the last few years is unlikely to hold.

As 2005 comes to a close, outlooks for the coming year are beginning to trickle out. Although, as of last week, opinions remained limited participants seem to be learning and are predicting that issuance volume remain at least on par with 2005.

The U.S. ABS primary market priced $13 billion last week as the market slowed slightly going into the closing weeks of the year. The calendar was, as usual, dominated by real estate-related deals, but last week it was unusually so, as only one auto deal and two credit card deals made it on the board to mix things up.

Personal income growth is expected, by and large, to exceed upward movement in both the per-capita cost of energy and adjustable-rate mortgage payments upon rate reset among non-agency borrowers, according to a recent report by Friedman Billings Ramsey. And, while consumers may be spending less in general expenditures when their mortgage rates do reset - causing a dampening in economic activity - the behavior "should support timely mortgage payments," FBR's Michael Youngblood wrote in a report released last week.

While roughly one-third of outstanding subprime mortgage loans are scheduled to reset into higher interest rates, mortgage issuers are expected to be waiting in the wings with a new suite of affordability products to help keep mortgage payments manageable, according to Fitch Ratings. And while prime and alt-A borrowers are anticipated to favor fixed-rate products, subprime borrowers are likely to remain in the adjustable-rate sector.

Fortis Bank recently completed one of the first synthetic CDOs incorporating credit default swaps with varying maturity dates. The Regatta CDO, issued by Solent Capital, includes both five-year and eight-year maturing credit default swaps. The structure is expected to become more popular as innovation within the managed synthetic CDO market continues developing.

LAGUNA NIGUEL, CALIF. - Credit opportunity funds - defined as a fund that allows the manager to rejigger his or her asset mix - are employing that flexibility to swoop in and purchase discarded CDO bonds, said Dale Leshaw, head of credit at Alcentra, during a panel discussion at Opal Financial Group's CDO Summit held here last week.

The U.S. ABS primary market posted another extraordinary week, generating $23 billion in issuance and continuing the predicted flood of paper as issuers rushed to get deals finished before the Jan. 1 implementation date of the Securities and Exchange Commission's Regulation AB.

After nearly two years of leaping regulatory hurdles, Houston-based CenterPoint Energy priced a $1.25 billion rate reduction bond offering last week. The deal is to be the first chunk off a $1.85 billion RRB program approved this spring, with the next $600 million offering slated to hit the market sometime in 1Q05. Credit Suisse First Boston, Lehman Brothers and RBS Greenwich Capital led the current deal, which priced Friday morning, after ASR went to press.