CDOs

A lot of talk centered around the securitization market this week, from former Federal Reserve chairman Alan Greenspan's gloomy remarks about the sector, to a midweek summit that attracted more than 900 industry delegates. What spoke volumes, however, was the uptick in securitization activity from various asset classes, including a small mortgage transaction from Yale.

The Hyundai Auto Receivables Trust finally came to market last week, with key changes that boosted its ratings and lowered initial and target credit enhancement for its class A notes.

With an MBS market painfully parched from a lack of liquidity, and expected to stay that way well into next year, several large, well-known asset management firms and smaller alternative investment shops are planning to launch distressed-debt funds.

Leveraged loan market players made the optimistic prediction last week that CLOs would return to the loan market stage by January or February of 2008. The topic was one of many discussed by market participants at the 13th annual Reuters Loan Pricing Corporation Gold Sheets conference.

Market participants welcomed the ninth series of the North American Investment Grade CDX index (CDX.IG.NA series 9) last Thursday with high expectations, specifically with the addition of better quality and retail-heavy names.

With a growing number of both mortgage originators and MBS issuers crumbling amid subprime market distress, loan servicers are seeing very little new volume come their way.

Home value inflation by appraisers as a result of employment pressures from mortgage originators has long been a problematic issue for the mortgage market.

Even as the global financial markets try to stem the bleeding and lick their wounds, some in the securitization industry are predicting not only that the subprime mortgage industry will recover, but also that it will actually grow.

If one thought that a conference addressing the prospects of the subprime mortgage market would be mostly doom and gloom, one would be right.

The securitization market's mood remains palpably apprehensive, but last week several issuers resigned themselves to the reality of having to accept wider spreads. So, they completed a handful of student loan, credit card, equipment and subprime auto loan deals. Granted, issuance failed to amount to more than $4 billion, among those deals, but several market participants withstood market conditions to get things done.

You might think hosting a conference in a building that's a throwback to the quiet elegance of Belle Epoque New York would give beleaguered finance types respite from the hostile markets outside.

The breadth of downgrades - and the resulting liquidations and margin calls - upended the U.S. subprime RMBS market in July. But the downgrades are far from over, market participants say, and many expect a repeat of the July experience.

Don't let the plainness fool you. Although MRU Holdings, known as MyRichUncle, made its securitization debut with a deal that had no innovations or special features outside of up-to-the-minute SLABS techniques, the student loan firm is making a huge splash in its core industry.

As bad as the subprime mortgage meltdown has been, market analysts don't question that there will be a recovery. The concern is really about how soon the bounce-back will happen. The toll the mess has taken on the reputation of mortgage brokers, however, is a different matter.

The Federal Reserve has urged the use of loan modifications to stem the tide of defaults that could result from the current subprime mortgage troubles, and servicers appear to be responding.

Hard money lending has traditionally been used as a short-term funding option for borrowers who have been seriously delinquent on a prior loan and are unable to refinance into a new, conventional loan.

Mortgage flows in the early part of the week were below average and mixed. The rally in Treasurys last Monday, to even lower yields following the previous Friday's shocking employment report, brought additional convexity buying from servicers. Buying support also came from real money. Last Tuesday's selloff moved the convexity bid to the sidelines and generated better selling as investors again focused on various risks. This included news that Countrywide Financial was seeking another capital infusion. Uncertainty about Federal Reserve action on Sept. 18 added to general nervousness in the market. Further adding to mortgage woes were poor dollar rolls on the high funding costs. As far as overseas investor participation was concerned, it remained lackluster into midweek. Originator selling was also light, with roughly a $1 billion per day average.

The European Central Bank's announcement last week that it would hold off on any further rate hikes in the current market led market players to suspect that the Bank of England will follow suit. And while a slowdown on rate hikes is expected to improve consumer sentiment, some players believe the current market crisis could take more than two years to run its course.

Saying that securitization and its benefits require functioning capital markets, two industry groups last week outlined measures designed to improve market conditions for the ABCP and structured investment vehicle (SIV) sectors.

The volatility continuing to grip the structured investment vehicle (SIV) sector has forced at least one program to liquidate assets, while others brace for a similar fate. IKB Credit Asset Management (manager of IKB's Rhinebridge SIV) announced that it had liquidated $176 million of securities, becoming the first "conventional" SIV to do so. Cheyne Finance, an SIV with assets with a face value of approximately GBP6 billion ($12.9 billion) run by Cheyne Capital Management, a London-based hedge fund, also faced liquidation.