CDOs

Sometimes the thought of diminished ABS issuance, whether one sector or the whole business, rubs people the wrong way. It conjures up thoughts of sluggish productivity, and no one wants such a condition to go on for very long.

In what it hopes will be an uplifting step in a sinking subprime market, struggling residential mortgage provider Accredited Home Lenders agreed to be acquired by private equity fund Lone Star Fund for approximately $400 million, or $15.10 cash per share.

New York - Tighter underwriting was the catch phrase at the American Securitization Forum's annual conference last Wednesday. Market participants called for more stringent lending standards, increased market transparency and more attention to loan modifications to mitigate potential defaults in the subprime loan market.

Deutsche Bank Securities bulked up its investment solutions group - within the global capital markets division - last week with the addition of three new hires.

The CMBS market has been running strong for some time, as CMBS deals have, until recently, been considered a relatively cheap means of financing, serving as a popular way to fund buyouts, for example. Yet growth has come at the expense of deal quality. In April, the three rating agencies fired off a set of comments indicating that commercial mortgage underwriting was showing troubling signs of deterioration (Fitch Ratings, for one, predicts that 2007 vintage loans could have a 15% greater default rate than previous years). Culprits include CMBS so highly leveraged that borrowers need additional financing just to handle debt servicing, along with a larger number of poor-quality loans shoehorned into B-pieces of CMBS

Charlotte, N.C.-based investment management firm Babson Capital Management closed Babson Mid-Market CLO Ltd. 2007-II, the firm's first CLO to focus on middle-market loans, and the eighth CLO closed by the U.S. bank loan team in the past two years.

Quarterly credit card payment rates dropped for the first time in five years, as did one-month excess spread numbers. Yet the numbers did not revive concerns about whether consumers are finally becoming overwhelmed with debt.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Securities 10,516.4 1 33.5 10 Banc of America Securities 9,066.9 2 28.9 7 JPMorgan Securities 8,439.2 3 26.9 9 ABN AMRO 5,149.8 4 16.4 4 Barclays Capital 4,837.2 5 15.4 4 RBS Greenwich Capital 4,561.5 6 14.5 4 Citigroup Global Markets 4,361.4 7 13.9 4 Deutsche Bank Securities 3,706.9 8 11.8 3 Credit Suisse 3,631.1 9 11.6 3 Morgan Stanley 2,870.3 10 9.1 3 Industry Total 31,422.0 - 100.0 32 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch 27,602.0 1 18.4 31 Citigroup Global Markets 20,468.0 2 13.7 28 Morgan Stanley 14,652.6 3 9.8 47 JPMorgan Securities 11,588.9 4 7.7 20 Wachovia Securities 9,636.8 5 6.4 17 UBS 8,342.0 6 5.6 15 Barclays Capital 8,133.7 7 5.4 10 Deutsche Bank Securities 7,846.6 8 5.2 17 Banc of America Securities 7,166.7 9 4.8 8 Bear Stearns 6,767.9 10 4.5 13 Industry Total 149,725.2 - 100.0 257 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 11,405.0 1 28.6 18 Banc of America Securities 9,415.0 2 23.6 16 Citigroup Global Markets 7,500.0 3 18.8 9 Morgan Stanley 5,252.6 4 13.2 6 Credit Suisse 2,842.6 5 7.1 4 Deutsche Bank Securities 2,575.0 6 6.5 8 Barclays Capital 2,350.0 7 5.9 4 ABN AMRO 2,242.6 8 5.6 2 RBS Greenwich Capital 2,075.0 9 5.2 6 Wachovia Securities 2,025.0 10 5.1 4 Industry Total 39,815.3 - 100.0 59 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Countrywide Securities 21,586.4 1 13.6 21 RBS Greenwich Capital 21,197.3 2 13.4 26 Merrill Lynch 19,376.6 3 12.2 19 Morgan Stanley 15,607.5 4 9.8 16 Lehman Brothers 15,362.0 5 9.7 18 Banc of America Securities 14,389.0 6 9.1 20 Citigroup Global Markets 13,296.8 7 8.4 16 Bear Stearns 13,105.5 8 8.3 21 Deutsche Bank Securities 10,264.8 9 6.5 13 JPMorgan Securities 8,011.0 10 5.1 9 Industry Total 158,600.0 - 100.0 197 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Banc of America Securities 12,758.4 1 46.5 5 JPMorgan Securities 11,994.9 2 43.7 4 Deutsche Bank Securities 8,929.2 3 32.5 4 Barclays Capital 8,836.0 4 32.2 2 Credit Suisse 8,707.8 4 31.7 3 Morgan Stanley 6,270.3 6 22.8 2 Goldman Sachs 5,842.0 7 21.3 2 Wachovia Securities 4,806.0 8 17.5 1 Lehman Brothers 4,142.0 9 15.1 1 RBS Greenwich Capital 3,051.4 10 11.1 1 Industry Total 27,448.6 - 100.0 12 Source: Thomson Financial

auto ABS 8% credit card ABS 12% equipment ABS 1% real estate ABS 70% student loan ABS 9% trade receivables 0% utilities ABS 0%

A couple of British and Australian RMBS deals recently distinguished themselves in the issuance market, a sign for some in the asset securitization business that a wave of such products could be on the way.

Churchill Financial is looking to increase its assets. The New York-based middle-market finance company is not only bulking up its portfolio, but also adding breadth with the recent opening of a Chicago office and several new additions to its team in New York.

In examining the link between the rate of home price inflation and residential mortgage default rates for subprime loans, Fitch Ratings demonstrates the strong negative correlation between the two. In short, high rates of home price inflation (HPI) helps keep subprime default rates low. Conversely, slow home price growth and home price deflation drives defaults higher as is the case with the 2006 subprime vintage. In California, home prices based on the weighted average of the loans' geographic concentration are relatively flat, growing by a meager 0.2% between 4Q05 and 4Q06.

After taking a break in April, the three ABX.HE indices experienced an at-times brutal decline in quality last month, with 30-day and 60-day delinquencies on the rise for all indices, while analysts feared that the newest market index, ABX 07-01, was deteriorating far faster than its more established sister indices.

Moody's Investors Service said in a report last week that despite concerns about subprime mortgage deterioration spilling over, the credit card sector's performance is still within the rating agency's expectations. In fact, Moody's expects no near term impact on ratings for credit card issuers and ABS.

Market interest was strong and expectations high last week before Academic Loan Group priced its $1.3 billion ALG Student Loan Trust II.

Performance of ABS deals remained strong through April, but macroeconomic concerns might eventually weaken performance later in 2007.