CDOs

Amid anxieties over what lies ahead, conference delegates got some strongly worded advice last week on how to promote the ABS industrys recovery: bite the bullet, take losses and structure future deals with larger equity components. If the subdued cocktail parties and many underlying bar-side conversations did not underscore the markets shaken confidence, then the remarks delivered during the opening session of IMNs ABS East conference might have.

Several CMBS, student loan ABS and esoteric deals have hit the market since Nov.1, and issuance totaled more than $11 billion. Still, market sources suggest that the asset securitization industry has a long way to go before real recovery begins to take hold.

In recent months, the securitization market had come to rely on the consumer ABS asset classes to sustain production, while the subprime MBS and CDO markets retreated. Last week, however, that small group itself-comprised of credit card, auto and student loan ABS-began to look winded.

As rating agencies boost their CRE-surveillance criteria to defend against opacity, the Commercial Real Estate CDO market appears to be learning from transparency troubles in the ABS CDO space. Recently, Derivative Fitch released a report requesting CRE CDO managers to distribute enhanced and standardized loan-level information to investors in an effort to avoid downgrade shock, while increasing market liquidity.

The complexity of asset-backed securities (ABS) and collateralized-mortgage obligations (CMOs) has played a major role in Wall Street's current difficulties valuing the assets, and it has also created processing complexities resulting in operational and potential reputation risks as well as millions of dollars in unnecessary costs.

After the recent launch of CMBX. NA.4, spreads on initial trading are wide, market participants noted last week, explaining that the lastest series references riskier commerical mortgage bonds than its predecessors.

As the securitization industry tries to make sense of life after the credit market meltdown, we at Asset Securitization Report thought it would be a good time to sit down with some of the top players in the RMBS and CMBS market and hear their views on where we've been, where we're at and where we're going.

Early in the asset-backed securities production week, issuance was so slow that one trader said he thought investors had already snatched up whatever attractive paper was on the table.

Cohen and Co. is in the market with a $408 million cash-flow trust preferred CDO, ALESCO Preferred Funding XVII. The deal will be the 22nd trust preferred transaction completed by Cohen & Company Financial Management and its affiliates, but it might not be the most profitable. Market players speculate that the company might only break even, if not take a loss on the transaction, in a move they see as an effort to promote market liquidity.

WASHINGTON - Almost as soon as the news broke that some of the largest U.S. banks had agreed to create a fund to relieve problems in the commercial paper market, proponents of the Basel II capital accords began arguing that the situation would have looked significantly different had the new standards already been in place.

No surprise here: ABS East Conference delegates are concerned that the weakness in the subprime mortgage market is expanding to affect the overall market for securitized assets, according to an Information Management Network survey.

As of press time, remittance data was out for 19 of the 80 ABX reference deals and not surprisingly October brings more headaches to the mortgage market. For all four indices, the average size of the monthly increase continued to grow, Deutsche Bank analysts said in a report.

Utility companies once turned to the securitization industry to recover what it called stranded costs - actually stranded profits - as they surrendered monopolies in their respective markets through mandatory deregulation.

The securitization market completed about $9.8 billion in transactions during the last two weeks, according to data from UBS. Although that amount is a fraction of what is normally issued in any given two-week period, traders and issuers appear to be getting used to it.

New issuance in the U.S. CDO market remains dormant amid continued ratings instability. But the center of gravity seems to be moving east for CDOs as an increasing number of transactions are popping up overseas, particularly synthetic structures.

The Brooklyn U.S. attorney has started an investigation into the collapse of the two Bear Stearns hedge funds - its High Grade Structured Credit Strategies Master Fund and its High Grade Structured Credit Strategies Enhanced Leverage Master Fund - that had subprime exposure, sources familiar with the matter said.

About a month ago, amid the turmoil that caused about $80 billion in securities to evaporate from the structured investment vehicle (SIV) market, Moody's Investor's Service suggested that bank sponsorship might make the difference between normal operations and the wind down of much of that market.

Production volume in the securitization market was low last week, as market participants came off of the third quarter's end and a holiday weekend. Still, distressed-debt funds and choosy investors kicked up enough dust to let the market know they would be choosy about the kinds of debt they buy, at least for the time being.

Independent data and trade processing firm Markit launched the first tranched LCDX last Wednesday, with market players forecasting that a new crop of investors would take an interest in the product and create liquid trading conditions.

The Royal Bank of Canada is preparing to issue a 15 billion ($21 billion) covered bond program to finance a pool of mortgages. The Global Covered Bond Programme represents the first issuance of covered bonds backed by Canadian assets.