ABS

When it comes to relative value in student loan pools, analysts with Lehman Brothers say the more seasoned the better. Student loan prepayment rates, driven by consolidation, are expected to skyrocket for 2Q05 as the interest rate on Stafford loans was reset upward by 193 basis points last Friday, and the U.S. Department of Education recently allowed borrowers to consolidate loans while still in school.

Banc of America Securities broke into the auto whole loan sector last week with an $890 million deal and emerged as the newest member of a cadre of investment banks that have moved into the sector in recent years. The deal, tagged BASAT 2005-WF1, consists of four triple-A senior tranches and $38 million of 2.86-year subordinated bonds, rated A3' by Moody's investors Service and A+' by Standard & Poor's. The triple-B rated C class was rated only by S&P.

Moody's Investors Service is currently implementing changes to its asset correlation model within cashflow structured finance CDOs backed by ABS, RMBS, CMBS, and other CDO tranches, said Yvonne Fu, a senior vice president in the rating agency's derivatives group. Moody's changed its approach for modeling correlations in synthetic transactions in the latter part of last year, she added.

Securities offering reform legislation passed unanimously by the Securities and Exchange Commission last Wednesday that aims to broaden the ability for written information sharing prior to the final prospectus was the adoption of a rule that will expose Wall Street firms and issuers to liability based on a determination of the completeness and accuracy of information an investor receives at the time he or she purchases a security. The rule, dating back to 1933, was most recently in the public eye when Google Inc.'s initial public offering was nearly derailed following an article featuring its founders that appeared in Playboy Magazine. And while the liberalization of information sharing may be good for equity IPOs, the liabilities that come along with it could be a hindrance to the ABS market, which commonly maintains a pre-investment dialogue between issuers, underwriters and investors in order to structure a deal's underlying collateral and cash flows, for example, prior to the issuance of a final prospectus.

Subordinate home equity spreads widened this week, as some speculated that investors began to grow nervous of risk involved in the deals, and a number of analysts released sour outlooks on residential mortgage performance, particularly in the subprime market. Some deals in secondary trading are trading south of where they've been in recent months, on the anticipation that the price buyers are willing to pay is headed further in the same direction, according to industry sources.

Just a few weeks after its expansion into aviation finance, Guggenheim Capital Markets, LLC recently announced the hire of Ronald Iervolino as managing director of the company's structured finance unit and Steven Finnk as senior vice president in the trading group. The move is a reflection of Guggenheim's continued efforts to expand its presence in the capital markets.

Year to date as of 06/30 Term (days) 06/24 06/27 06/28 06/29 06/30 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 6,499.6 2 13.8 11 Merrill Lynch & Co Inc 5,884.5 3 12.5 8 Deutsche Bank AG 5,641.7 4 12.0 10 Barclays Capital 4,302.5 5 9.1 8 Credit Suisse First Boston 4,111.9 6 8.7 8 Wachovia Corp 3,712.5 7 7.9 8 Banc of America Securities LLC 3,433.1 8 7.3 7 Goldman Sachs & Co 1,841.0 9 3.9 2 HSBC Holdings PLC 1,826.8 10 3.9 3 Industry Total 47,096.0 - 100.0 45 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 8,536.2 2 14.1 18 Lehman Brothers 4,315.7 3 7.1 14 Morgan Stanley 4,049.6 4 6.7 17 UBS 3,673.9 5 6.1 9 Wachovia Corp 3,359.3 6 5.6 8 Goldman Sachs & Co 3,107.0 7 5.1 4 Bear Stearns & Co Inc 2,915.2 8 4.8 7 Groupe Caisses d'Epargne 2,442.0 9 4.0 3 Credit Suisse First Boston 2,239.0 10 3.7 5 Industry Total 60,410.5 - 100.0 147 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 3,973.7 2 19.2 12 Barclays Capital 2,799.0 3 13.6 10 Morgan Stanley 2,216.5 4 10.7 4 ABN AMRO 1,433.2 5 6.9 6 Deutsche Bank AG 1,001.4 6 4.9 9 Banc of America Securities LLC 836.2 7 4.1 6 Credit Suisse First Boston 779.9 8 3.8 5 Merrill Lynch & Co Inc 512.2 9 2.5 3 Lehman Brothers 416.7 10 2.0 2 Industry Total 20,652.0 - 100.0 45 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 Credit Suisse First Boston 1,654.9 2 13.8 4 ABN AMRO 1,654.9 2 13.8 4 Barclays Capital 1,492.5 4 12.4 2 Morgan Stanley 1,191.7 5 9.9 2 Banc of America Securities LLC 750.0 6 6.2 1 Lehman Brothers 725.8 7 6.0 1 JP Morgan 725.8 7 6.0 1 HSBC Holdings PLC 566.7 9 4.7 1 Merrill Lynch & Co Inc 375.0 10 3.1 1 Societe Generale 375.0 10 3.1 1 Industry Total 12,034.1 - 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 Bear Stearns & Co Inc 33,373.4 2 10.2 67 Morgan Stanley 28,472.5 3 8.7 37 Countrywide Securities Corp 27,870.4 4 8.5 33 Royal Bank of Scotland Group 26,986.1 5 8.3 45 Deutsche Bank AG 26,232.3 6 8.0 45 Credit Suisse First Boston 24,841.5 7 7.6 54 Citigroup 21,341.9 8 6.5 40 Banc of America Securities LLC 18,452.3 9 5.7 37 Merrill Lynch & Co Inc 17,734.6 10 5.4 25 Industry Total 326,216.9 - 100.0 544 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 3,134.2 2 11.3 4 Deutsche Bank AG 3,042.0 3 10.9 5 Morgan Stanley 2,757.6 4 9.9 3 Credit Suisse First Boston 2,696.2 5 9.7 4 Goldman Sachs & Co 2,127.2 6 7.6 4 Merrill Lynch & Co Inc 1,839.8 7 6.6 2 UBS 1,827.7 8 6.6 4 JP Morgan 1,158.5 9 4.2 3 Lehman Brothers 1,012.4 10 3.6 1 Industry Total 27,867.5 - 100.0 22 Source: Thomson Financial

auto ABS 19% credit card ABS 7% global MBS 5% real estate ABS 58% student loan ABS 8% other 4%

Dominion Bond Rating Service is expecting Canadian conduits to become an increasingly larger player in the CDO market. The rating agency is projecting conduit CDO purchases to grow to 15% to 20% of conduit outstandings next year, up from a currently estimated 7% to 8% share. But, that growth will depend, in part, on conduit and ABCP investor support of the products, which Dominion is trying to drum up.

Friedman Billings Ramsey released another positive report on the state of underwriting in residential mortgage loans in which its author, Michael Youngblood, FBR's head of ABS research, is sure will be controversial. Youngblood said the concept of deteriorating mortgage loan underwriting is generally unfounded and "a source of some wonderment that at least a significant part of the media world has grasped onto." (See related story p. 14).

The ABS primary market steamed onward into the first official week of summer as $25 billion in new issues were in the market. By some calculations the market has already outpaced 2004 year-to-date by nearly $150 billion in issuance, and no one seems to be expecting a slowdown anytime soon.

The auto fleet lease sector witnessed the coming of a first-time entrant last week as Chicago-based leasing company Wheels, Inc. priced a private, $500 million deal led by JPMorgan Securities, its first ever term securitization. Wheels had previously issued discreetly into the conduit market.

The state utility boards of Florida and New Jersey last week helped clear the way for power companies within their states to issue utility ratepayer-backed bonds.

Two first-time CDO managers are closing a pair of separate deals in the coming weeks, both backed predominantly by CMBS. Real estate investment trust Gramercy Capital Corp. priced a $1 billion CDO last week, and SCFFI GP LLC, an affiliate of hedge fund manager Five Mile Capital Partners, is planning to close a $467 million deal.