ABS

Loss severities in auto deals with high concentrations of trucks and SUVs could soon rise if demand for those vehicles continues weakening, according to Fitch Ratings analysts. In fact, recovery rates on defaulted truck and SUV loans are already starting to decline, thanks to high fuel prices and increased dealer incentives that have conspired to dampen used vehicle prices.

For the third week in a row, the U.S. ABS primary market has generated around $13 billion in new issues, as the market seems to have hit a robust autumn issuance pace.

San Francisco-based Pacific Gas & Electric Co. last week priced its second rate reduction transaction of the year, an $845 million offering via Barclays Capital, Citigroup Global Markets and Morgan Stanley as joint-lead underwriters. The deal is the second part of the company's $3 billion rate reduction bond, also called energy recovery bonds or stranded assets, issuance program authorized by the California Public Utility Commission last year.

Following a nearly one-year hiatus, Aames Investment Corp. will resume selling the majority of its mortgage originations to the secondary whole-loan market. The Los Angeles-based subprime mortgage lender last November reorganized under a REIT platform - a shift which required the accumulation of its now $4.2 billion investment portfolio in order to achieve its desired leverage.

In this era of ultra-tight spreads, a first lien loan with a 650 basis point over Libor coupon is like a diamond in the rough. This is why Delphi Corp.'s $1 billion term loan - which not only priced at Libor plus 650 basis points, but it was also sold at an original issue discount of 99.5 - broke to trade in the 103 context and traded up after the company filed for bankruptcy, as loan investors were expected to net a full recovery.

Fitch Ratings is in the process of changing its collateralized debt obligation asset manager rating approach, otherwise known as CAM, to incorporate synthetic CDO asset managers, the rating agency announced last week. The move comes as a result of increasing U.S. issuance of managed synthetic CDOs, as well as the occurrence of larger synthetic buckets within cashflow CDOs.

Another first-time commercial real estate CDO issuer has come to the market, with a $416 million deal expected to close Nov. 10. JER Investors Trust Inc., a publicly traded REIT, primarily buys and originates commercial mortgage-backed securities and loans, mezzanine loans, mortgage loan B-notes and net leased real estate investments.

Year to date as of 11/03 Term (days) 10/28 10/31 11/01 11/02 11/03 1-week

MBIA Insurance Corp. may still have to pay some insurance claims on ABS deals it wrapped for now-bankrupt student loan lender Student Finance Corp. after hundreds of millions of dollars of that company's student loans defaulted as a result of alleged fraud.

For the second week in a row, the U.S. ABS primary market has generated $13 billion in new issuance. As usual, the calendar was dominated by real estate related deals, with three credit card deals, an auto deal, a student loan deal and an insurance receivables deal sneaking their way into the market.

Atlantic & Western Re Limited was set to price a $300 million catastrophe bond private placement last week on the heels of two vicious hurricane seasons that saw eight storms ravage the U.S. Gulf Coast and Florida regions in the past 15 months. The deal marks the sixth issuance this year in the under-the-radar sector.

Almost one year to the date of its first-ever CDO issuance, Maxim Advisory last week brought to the market its first CDO backed by mezzanine-grade RMBS collateral. The deal is the fourth for Maxim, a unit of broker-dealer Maxim Group LLC.

An increasingly wide band of market players looking to express a shorting interest in home-equity ABS has ballooned the credit default swap market on the month to more than $4 billion in bid and offer lists - surpassing cash market volumes, according to Lehman Brothers, and gapping out spreads on CDS premiums by as much as 250 basis points. Most of the activity has occurred at the triple-B rated levels, and 90% of protection buyers have focused on the 2004 and 2005 vintages, indicating an overwhelmingly bearish view of the housing market going forward.

Despite rising interest rates, the number of subprime mortgage borrowers opting to refinance their mortgages increased in September, in one scenario by as much as 21.8% over the previous month, according to Michael Youngblood, head of ABS research at Friedman Billings Ramsey.

Pacific Investment Management Co.'s Pacific Coast CDO Ltd., which was brought to the market by Credit Suisse First Boston in late September 2001, received another rash of downgrades last week.

The nature of CLO exposure to troubled U.S. auto parts supplier Delphi Corp. shows how much those deals are, and have been, thirsty for loans that will offer higher-than-average spreads, according to Standard & Poor's.

Year to date as of 10/27 Term (days) 10/21 10/24 10/25 10/26 10/27 1-week

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 8,744.1 1 12.2 15 Citigroup 8,299.9 2 11.5 14 JP Morgan 8,270.8 3 11.5 13 Merrill Lynch & Co Inc 7,943.7 4 11.1 10 Banc of America Securities LLC 7,695.8 5 10.7 12 Wachovia Corp 7,317.1 6 10.2 14 Barclays Capital 5,531.6 7 7.7 10 Credit Suisse First Boston 4,561.9 8 6.3 9 Goldman Sachs & Co 3,564.1 9 5.0 4 HSBC Holdings PLC 3,334.4 10 4.6 5 Industry Total 71,916.0 - 100.0 68 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 19,472.7 1 17.6 28 Citigroup 14,645.2 2 13.2 33 Wachovia Corp 9,941.1 3 9.0 18 Bear Stearns & Co Inc 8,941.3 4 8.1 22 Morgan Stanley 8,824.2 5 8.0 31 Deutsche Bank AG 7,080.6 6 6.4 17 Banc of America Securities LLC 6,524.5 7 5.9 22 JP Morgan 5,293.0 8 4.8 14 UBS 5,278.1 9 4.8 12 Lehman Brothers 5,147.7 10 4.7 16 Industry Total 110,736.4 - 100.0 262 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 11,469.1 1 25.7 22 Citigroup 8,147.0 2 18.2 20 Barclays Capital 4,891.0 3 10.9 14 Deutsche Bank AG 3,776.7 4 8.5 18 Banc of America Securities LLC 3,133.2 5 7.0 12 Morgan Stanley 3,016.5 6 6.8 5 Credit Suisse First Boston 2,250.0 7 5.0 7 Lehman Brothers 2,000.0 8 4.5 5 ABN AMRO 1,833.2 9 4.1 7 Royal Bank of Scotland Group 1,285.8 10 2.9 5 Industry Total 44,717.5 - 100.0 87 Source: Thomson Financial