ABS

Merrill Lynch again brought the largest share of CDOs to the U.S. primary market compared to its peers, bringing some $17.5 billion to the market to achieve an 18.1% market share in the first three quarters of the year, according to data maintained by Thomson Financial. Citigroup Global Markets, moving up from its number three spot in the second quarter, followed behind Merrill, with $12.1 billion of issuance and a 12.6% share of the market.

Private student loan ABS should experience lower default rates and spreads could potentially tighten on some deals as a result of the implementation of the Bankruptcy Reform Act next Monday, according to Morgan Stanley researchers. Changes to the law and an expected decline in bankruptcies should combine to keep more loans in private student loan pools paying.

As the Oct. 17 implementation date for the Bankruptcy Reform Act rapidly approaches, a second surge of bankruptcy filings has beset the ABS market as consumers continue rushing to file before the more stringent law takes effect. Though the increase in bankruptcy filings, a repeat of the one that took place this spring, is expected to cause a proportionate increase in chargeoffs, analysts report that most credit card ABS will be unaffected.

Pacific Gas & Electric Co. plans on issuing an additional $800 million energy recovery stranded cost ABS next month, according to a company official. PG&E Assistant Treasurer Nick Bijur confirmed the deal was imminent, and that Barclays Capital, Citigroup Global Markets and Morgan Stanley would jointly lead manage the offering.

For a rating agency whose analysts claim that a lack of market share is a competitive advantage, its growth would nearly prove counterintuitive. Dominion Bond Rating Service, the only private rating agency certified with NRSRO status in the U.S., is slowly brandishing its name on more and more deals within the asset-backed market, a development its top analysts say is due to quality service, relatively conservative ratings and transparency.

By Moody's Investors Service Associate Vice President, Wing Ng and Associate Analyst, Wei Hu

Subprime mortgage loans considered seriously delinquent began to increase in August, while prepayments slowed amid rising short-term interest rates, according to a Friedman Billings Ramsey report released last week. Further, head ABS analyst at FBR Michael Youngblood, who authored the report, identified slight tiering among loan default frequencies from various issuers.

According to Newport Beach, Calif.-based PIMCO's Bill Gross, the party of rapid home price appreciation should come to a fizzle within the next three-to-six months.

Year to date as of 09/29 Term (days) 09/23 09/26 09/27 09/28 09/29 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 8,270.8 1 12.7 13 Deutsche Bank AG 7,995.4 2 12.3 14 Citigroup 7,602.2 3 11.7 13 Merrill Lynch & Co Inc 7,246.0 4 11.1 9 Banc of America Securities LLC 5,947.1 5 9.1 10 Wachovia Corp 5,568.3 6 8.5 12 Barclays Capital 4,782.8 7 7.3 9 Credit Suisse First Boston 4,561.9 8 7.0 9 Goldman Sachs & Co 3,564.1 9 5.5 4 HSBC Holdings PLC 3,334.4 10 5.1 5 Industry Total 65,175.6 - 100.0 63 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 17,463.7 1 18.4 26 Citigroup 12,101.3 2 12.7 26 Bear Stearns & Co Inc 8,212.8 3 8.6 19 Morgan Stanley 7,534.7 4 7.9 28 Wachovia Corp 7,172.4 5 7.5 15 Banc of America Securities LLC 5,924.5 6 6.2 21 Deutsche Bank AG 5,279.6 7 5.6 14 Lehman Brothers 5,147.7 8 5.4 16 UBS 4,453.1 9 4.7 11 JP Morgan 3,659.6 10 3.9 10 Industry Total 95,109.9 - 100.0 227 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 27.6 22 Citigroup 7,198.2 2 17.3 18 Barclays Capital 4,724.0 3 11.4 12 Deutsche Bank AG 3,324.6 4 8.0 15 Banc of America Securities LLC 2,966.2 5 7.1 10 Morgan Stanley 2,216.5 6 5.3 4 Credit Suisse First Boston 2,088.2 7 5.0 8 Lehman Brothers 1,850.0 8 4.4 5 ABN AMRO 1,833.2 9 4.4 7 Royal Bank of Scotland Group 1,135.8 10 2.7 4 Industry Total 41,633.1 - 100.0 79 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 19.6 4 Deutsche Bank AG 1,668.6 2 13.4 3 ABN AMRO 1,643.6 3 13.2 3 Barclays Capital 1,492.5 4 12.0 2 Credit Suisse First Boston 1,243.6 5 10.0 2 Banc of America Securities LLC 750.0 6 6.0 1 Lehman Brothers 725.8 7 5.8 1 JP Morgan 725.8 7 5.8 1 HSBC Holdings PLC 566.7 9 4.6 1 Merrill Lynch & Co Inc 375.0 10 3.0 1 Societe Generale 375.0 10 3.0 1 Industry Total 12,450.2 - 100.0 11 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 51,729.2 1 10.7 102 Bear Stearns & Co Inc 43,189.6 2 8.9 97 Credit Suisse First Boston 42,059.3 3 8.7 89 Royal Bank of Scotland Group 39,994.6 4 8.2 66 Countrywide Securities Corp 38,085.7 5 7.9 47 Deutsche Bank AG 36,772.0 6 7.6 68 Morgan Stanley 36,725.7 7 7.6 47 Citigroup 31,257.5 8 6.4 64 Banc of America Securities LLC 26,112.8 9 5.4 56 Merrill Lynch & Co Inc 25,189.4 10 5.2 39 Industry Total 485,386.9 - 100.0 914 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 10,464.9 1 23.5 14 Deutsche Bank AG 5,681.9 2 12.8 8 Banc of America Securities LLC 4,831.0 3 10.8 8 Merrill Lynch & Co Inc 4,261.6 4 9.6 4 Morgan Stanley 3,883.6 5 8.7 4 Credit Suisse First Boston 3,367.9 6 7.6 5 Goldman Sachs & Co 3,153.8 7 7.1 6 UBS 2,994.3 8 6.7 6 JP Morgan 2,368.5 9 5.3 5 Lehman Brothers 2,138.5 10 4.8 2 Industry Total 44,567.0 - 100.0 36 Source: Thomson Financial

auto ABS 16% credit card ABS 8% global MBS 4% real estate ABS 59% student loan ABS 9% other 4%

Irvine, Calif.-based subprime mortgage lender New Century Financial Corp., one of the largest issuers of subprime mortgage ABS in the market, last week announced that it's having difficulty selling loans to secondary market investors. Pointing to market conditions, company representatives during a conference call said whole loan bids were substantially lower than expectations - while some sources say bids for the company's loan pools are well below those of its competitors, forcing it to sell at least one recent pool of loans at a loss.

Moody's Investors Service has enhanced its analysis of highly concentrated structured finance CDOs - largely as a result of the ever-increasing exposure to RMBS in recent deals. As the largest sector of the ABS market, it's not uncommon to see RMBS concentrations to top 50%, of a CDO's collateral, but concentrations have trended upward to 75% and even 85%, according to Moody's.

The Florida Public Service Commission announced last week it selected New York-based advisor Saber Partners to be advisor for a program of hurricane recovery stranded cost ABS issuance to help Florida utility companies fund repairs to power lines and facilities after last year's brutal hurricane season.

An American Bankers Association report that credit card delinquencies rose for the second quarter in a row raised some eyebrows in the ABS market last week. However, sources say the news may be much ado about nothing, and poses no immediate threat to credit card ABS performance.