CDOs

For collateral managers who focus on CDOs, the most recent stream of troubling news in the financial sector has further shaken up an industry already reeling from more than a year's worth of nega-

Speakers on the opening panel at Information Management Network's second annual European CLOs, Structured Credit Products, and Credit Derivatives Summit said that the medium- to long-term outlook for the securitization market is positive, although it will be a bumpy ride along the way.

Fraudulent practices and false representations made by units at Countrywide Financial Corp. led MBIA Insurance Corp. to guarantee mortgage-backed securities that have already cost the insurer $459 million in policy claims and exposed it to several hundred millions more, MBIA said in a lawsuit filed earlier this week.

Prospects for CDO issuance is slim. As JPMorgan Securities analysts said in a recent report, "supply has yet to come into the market, with many prospective sellers waiting for market stability."

CDO shop Deerfield Capital Corp. announced the company's conversion to a C corporation to maximize its use of significant tax benefitsto increase stockholder value.

Last week U.S Secretary of the Treasury Henry Paulson extended the biggest lifeline to the financial markets of all time - and perhaps made the biggest gamble with U.S. taxpayer money - when he announced a plan to purchase approximately $700 billion in troubled assets from U.S. financial institutions.

As Congress battled over the terms of the Treasury bailout plan last week, Christopher Ricciardi, chief executive officer at Cohen & Co. and former managing director of global structured credit products at Merrill Lynch, launched an alternative proposal to the government's purchase strategy under the Troubled Asset Relief Plan (TARP) .

Par-based investors in the triple-A CLO market may soon have their sense of security tested. Many still apparently cling to the assumption that their bonds will ultimately be repaid at par, based on the senior position of these bonds in the transaction structure and the corresponding protection from potential losses.

Cohen & Co. CEO Christopher Ricciardi wrote an open letter to Treasury Secretary Henry Pauslon dated today titled Enhancing The Paulson Plan Through the Creation of a Federal Bond Insurance Corporation.

Securities and Exchange Commission (SEC) Chairman Christopher Cox called Tuesday for regulation of certain credit derivative products, saying the market was overrun by fraud that contributed to the housing crisis.

Sept. 15 was a day of reckoning for Wall Street as the market said goodbye to two U.S. financial institutions, 158-year old Lehman Brothers, whose parts will be wrapped into Barclays Capital, and 94-year old Merrill Lynch, which will now exist under the Bank of America umbrella.

In the wake of the announcement of the Lehman Brothers bankruptcy, ABS market participants are examining its effect on the industry.

The beginning of September was wracked with uncertainty as Fannie Mae and Freddie Mac struggled with liquidity issues. That was until the government stepped in with a bailout plan for the GSEs. However, the government cannot stop growing fears of mounting losses at Lehman Brothers, which continued last week.

Fitch Ratings said that credit events on Fannie Mae and Freddie Mac are unlikely to trigger large scale CDO downgrades even though both GSEs are referenced in approximately 30% of synthetic CDOs rated by the agency.

Standard & Poor's expects the U.S. Treasury's announcement that Fannie Mae and Freddie Mac had been placed in conservatorship by the Federal Housing Finance Agency, and S&P's resulting rating actions on these entities to have a minimal rating impact on U.S. and European synthetic CDO transactions, the rating agency said this afternoon.

MBIA will reinsure $184 billion worth of Financial Guaranty Insurance Corp.’s U.S. public finance book, providing a boost to municipal bond holders and to FGIC’s statutory capital position, the companies announced Wednesday night.

Fitch Ratings presents its asset-level projected loss analysis (PLA) to quantify loss expectations on structured finance (SF) CDOs.

Standard & Poor's yesterday lowered its ratings on 49 tranches from 11 U.S. cash flow and hybrid CDO deals.

With the monoline industry continuing to struggle for survival, albeit with a weak pulse, and the ABS CDO sector almost flatlining, CDO hedge agreements with the monoline industry have been a cause for concern within the structured finance market.

Last week proved to be another period of slow issuance for the primary market, and trading in the secondary was not that much more active.