CDOs

Despite what seems like an almost nonexistent CDO market, bank balance sheet CLOs are still garnering investor interest, according to sources.

Falling prices are forcing total-rate-of-return market-value CLOs to liquidate their underlying assets. These unwinding CLOs could present opportunities for investors, but could also drive prices down even further. And sources say the loan market has already hit historical lows.

ERMBX.UK, the index designed to reference synthetic U.K. prime MBS, looked set for an early launch a few weeks ago, with market reports indicating that the new index could go live earlier than the ECMBX.

The reconstruction of the securitization market took another turn last week as a collective group of European securitization market associations outlined a three-pronged initiative aimed at improving market transparency.

ABN AMRO and Dutch pension administrator PGGM have closed a synthetic CLO referencing a portfolio originated by ABN Brazilian unit Banco Real, according to a press release by the European bank. Named after the celebrated Iguacu waterfalls, the deal references a pool amounting to a notional $850 million. The credit risk of the portfolio is shared by participating credits in the first and second loss tranches of the CLO, the release said.

At the American Securitization Forum's (ASF) conference held in Las Vegas last week, many of the industry panels looked back at 2007 and reflected on how the market got to the state it's at right now.

Demands for more personal responsibility on the part of the CDO investor and the portfolio manager gave the rating agencies a break from the hot seat at the ASF's annual conference in Las Vegas last week.

Blame it on the New York Giants' Super Bowl victory or a streak of luck at the blackjack tables, but panelists at last week's American Securitization Forum's annual conference in Vegas were optimistic about liquidity returning to certain parts of the ABS market, particularly the CLO space.

Best of Times, the Worst of Times

Brown Rudnick has brought together staff from its structured finance, bankruptcy and corporate restructuring and distressed debt practices to form a structured resolution group.

As market participants move forward into 2008, many have hopes of liquidity returning to the ABS market. To this end, increased deal transparency is paramount to bringing investors back into the space, market sources said.

Best of Times, the Worst of Times

Despite widespread objections from securities professionals, the Financial Accounting Standards Board (FASB) is expected to approve a set of policies that would, in most cases, require financial institutions to link the initial transfer of a security and the subsequent repo financing for accounting purposes.

Credit Suisse's plan to lay off 500 people is part of a streamlining of its roughly 20,000 member investment banking businesses, sources familiar with the situation said last week.

Market value ABS CDOs have taken a beating from declines in the value of their underlying collateral. And now, the recent downgrades on synthetic CLOs backed by total return swaps have demonstrated that falling prices in the loan market have put CLO structures at risk too.

The mood was calm at The Loan Syndications and Trading Association's annual membership meeting last Tuesday, despite expectations of an uncertain year ahead for CLOs.

Arranger Unicredit Aton International hopes the anxiety of Western European investors will ease soon enough for them to consider a slice of a short-term cash CLO of Russian SMEs that closed at the end of December. "We are holding a small piece on a repo basis," said Dmitry Kozodoy, director of Aton's securitization department.

There wasn't any good news that emerged from the European CDO sector in 2007. But for banks and investors who braved the market and looked for some value in this beleaguered sector, European synthetic CDO tranches offered some respite.

After last month's announcement that uber-wealthy investor Warren Buffett's Berkshire Hathaway would be starting up a new municipal bond insurer, many industry participants felt that the competition would likely deepen the already strained capital positions of other wrap providers.

Recognizing that 2007 was an unusual year, and that highlighting individual transactions would not convey the ethos of a tumultuous year, the ASR staff has decided to veer away from our usual practice of naming notable deals. Aside from the comparatively scarce deal flow in 2H07, 2007 was notable not because of innovative transactions, but it will go down in history as a year of reckoning for all industry participants.