CDOs

As summer comes to a close and all of Europe has seemingly taken a holiday from the toughest months for the securitization market, it's likely that when players return they'll find that the European market is no closer to recovery.

Sorin Capital Management announced that Matt Chasin officially joined the firm on Aug. 11 as chief operating officer, partner and member of the investment committee.

Analysts have adopted a bearish stance on German cash mezzanine CLOs, saying they expect the deteriorating German economic landscape and shifting rating methodology to further pressure performance in this asset class.

Fitch Ratings said on Thursday that certain classes of notes issued across 43 CDOs backed all or in part by trust preferred securities issued by banks are on Rating Watch Negative.

Standard & Poor's appointed David Jacob as executive managing director and head of structured finance ratings reporting to Vickie Tillman, executive vice president at the rating agency.

Standard & Poor's cut the ratings of 50 tranches from 11 US cash flow and hybrid CDO transactions. The downgraded tranches have a total issuance amount of $5.502 billion.

The European Securitization Forum (ESF) has remained steadfast about its belief that the European securitization market will return. However, as the credit turmoil intensifies, the beleaguered market looks less likely to be fixed in the short term.

The European primary pipeline is still, for the most part, defined by retained deals, although public placement of Unicredit HVB's SME CLO, Geldilux TS 2008-1, shows that for the right paper, investors will still pay up.

The beach was looking a lot better than the office last week for many ABS traders, who noted that the summer slowdown has sapped deal flow, removing any hope of liquidity picking up.

Ambac Financial Group posted second quarter earnings of $823.1 million, thanks in large part to mark-to-market gains on credit derivatives, the company announced this morning. Ambac Financial, the parent of bond insurer Ambac Assurance Corp., said it had mark-to-market gains of $961.6 million in the second quarter, helping it record a net income equivalent of $2.80 per diluted share. Net income in the second quarter last year was $173 million, or $1.67 per share.

Issuance of securities backed by commercial mortgages is in the longest lull in more than 10 years, according to Chris Lau, an analyst at Royal Bank of Scotland Group PLC's RBC Greenwich Capital.

The story remains the same in Europe. Much of what little public ABS deal flow there is continues to be retained for European Central Bank eligibility.

Moody's Investors Service said in a report that it expects further write-downs for the large European banks' structured finance portfolios resulting from continued widening in U.S. subprime RMBS spreads and deterioration in the credit quality of financial guarantors.

Citigroup probably will write down the value of CDOs by $8 billion this quarter, Mike Mayo, a Deutsche Bank analyst, wrote in a report to clients Tuesday after Merrill Lynch said it would sell CDO holdings for 22 cents on the dollar.

Merrill Lynch has planned a series of moves to improve its capital position, including the sale of problematic mortgage-related CDOs for $6.7 billion, according to yesterday’s release.

IndyMac Bank's failure, and the cleanup that followed, were shocking, but not unprecedented in the structured finance market.

The largest Spanish corporate default, Martinsa-Fadesa, a Spanish homebuilder, signals potential risks in SME portfolios, Deutsche Bank analysts said.

Fitch Ratings said last week that the number of CLO managers is likely to decline by about 20% over the next three years as a result of managers being replaced or withdrawing from the market.

The financial guarantor industry is still holding on after nearly a year of downgrades, write-downs, litigation and stagnant new issuance. While some have stopped writing new business altogether, others are taking advantage of the challenging economic environment.

The European Securitization Forum (ESF) and the Securities and Financial Markets Association (SIFMA) hosted a seminar last week investigating the explosion in U.S. subprime litigation and what implication it had for European market participants.