CDOs

auto ABS 12% credit card ABS 10% real estate ABS 67% student loan ABS 11%

Moody's Investors Service late last Wednesday put on watch for downgrade a handful of subprime lenders' servicing operations, helping to roil the already volatile ABX.HE 06-2 index, which broke below 80 last week. The move prompted perhaps the biggest concern among home equity ABS investors already holding securities to the forefront - that the recent challenging atmosphere for subprime lenders could bleed through to loan servicing quality. In subprime lending, servicer quality is considered one of the most crucial aspects of loan performance, particularly as borrowers' monthly payments go up as a result of rate resets and other structural nuances.

SunTrust Robinson Humphrey's CDO team has left the company, despite the firm's plans for growth in the sector in 2007 and a media push to promote it.

Home equity loan ABS, as usual, dominated new issuance volume last week, similar to the way that the mortgage market dominated news and investor concerns.

Allegheny Energy, which is preparing a $466 million transaction to finance the costs of construction on an emissions control facility at a West Virginia plant, recently specified the amount of registered bonds to be issued under one portion of its planned transaction.

The TABX index began trading Feb. 14 at spreads much wider than a number of market players had anticipated. While not as shocking as, say, Britney Spears' new buzzcut, aside from structural differences, the trend in the TABX so far could indicate that investors place quite a bit of value in a CDO manager's ability to handpick good credits and trade out of bad ones. The implied triple-A tranches of the TABX came out of the gate pricing north of 100, double-As between 600 and 800, single-As between 1,400 and 1,800, triple Bs at nearly 2,000 and double-Bs between 2,000 and 3,000 basis points, according to JPMorgan Securities analysts, who described the pricing divergence against the back of mezzanine SF CDO spreads as "almost shocking."

FinanSure Student Loans, a Chicago-based student loan provider, is preparing to launch a $925 million securitization deal primarily backed by FFELP consolidated education loans. This marks the student loan issuer's first time coming to the ABS market.

ABS and MBS hedge fund Highland Financial Holdings Group recruited Sheila Huang as director and portfolio manager of the firm's high-grade strategies division. The move reflects, and continues be part of, ongoing efforts at Highland Financial to grow its personnel along with its business.

Subprime lender Novastar Financial Corp. took a $4 million loss in the fourth quarter related to its first CDO issuance. The loss was a public example of what a number of market participants are speculating about - that CDO issuers are being stung by mark-to-market losses on collateral sitting inside warehouse lines. While the Kansas City-based lender plans to move forward with plans for regular CDO issuance, the combination of volatility within cash home equity securities, wider CDO liabilities and the specter of more restrictive warehouse lines has some thinking the ABS CDO machine could be seeing a slowdown.

Moody's Investors Service is reviewing the Business Loan Express SBA Loan Trust 2001-1 transaction, and might downgrade the deal's affected securities.

New York - As the number of commercial real estate CDO transactions increases, analysts and investors are calling for improved surveillance in a market that still lacks transparency, according to speakers at the Information Management Network's Second Annual Real Estate CDO Symposium held here last week. To that end, ratings agencies are attempting to provide at least some information on this somewhat opaque market, beginning with the managers themselves.

Investment bankers dedicated to the financial institutions sector are making an extra effort to work closely with their debt capital markets teams in order to win a greater share of client business. In many instances reporting lines are getting switched around, ostensibly in the hope of spurring cooperation between the two groups.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 1,952.5 1 21.8 5 HSBC Holdings PLC 1,458.7 2 16.3 2 Barclays Capital 1,348.8 3 15.1 2 Banc of America Securities LLC 1,347.1 4 15.0 3 Wachovia Corp 1,210.7 5 13.5 3 Royal Bank of Scotland Group 599.3 6 6.7 1 Credit Suisse 550.0 7 6.1 1 Morgan Stanley 492.3 8 5.5 1 Industry Total 8,959.4 - 100.0 10 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 Citigroup 6,327.8 1 30.2 7 Barclays Capital 5,673.0 2 27.0 2 Bear Stearns & Co Inc 1,485.8 3 7.1 3 Deutsche Bank AG 1,403.3 4 6.7 4 Banc of America Securities LLC 1,269.0 5 6.1 2 Morgan Stanley 1,251.6 6 6.0 6 Lehman Brothers 965.0 7 4.6 2 JP Morgan 918.0 8 4.4 2 Goldman Sachs & Co 850.0 9 4.1 2 Wachovia Corp 845.5 10 4.0 2 Industry Total 20,988.9 - 100.0 31 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 JP Morgan 5,169.8 1 42.3 6 Banc of America Securities LLC 4,312.4 2 35.3 6 Wachovia Corp 962.5 3 7.9 3 Deutsche Bank AG 516.3 4 4.2 4 HSBC Holdings PLC 500.0 5* 4.1 1 Citigroup 500.0 5* 4.1 1 Lehman Brothers 266.3 7 2.2 3 Industry Total 12,227.2 - 100.0 20 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 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 Citigroup 6,325.4 1 15.0 11 Deutsche Bank AG 4,798.0 2 11.4 6 Merrill Lynch 3,666.8 3 8.7 4 Morgan Stanley 3,496.7 4 8.3 3 Lehman Brothers 3,277.9 5 7.8 8 Countrywide Securities Corp 3,142.0 6 7.5 2 Royal Bank of Scotland Group 2,669.7 7 6.3 4 Barclays Capital 2,492.2 8 5.9 7 Credit Suisse 2,365.2 9 5.6 3 Bear Stearns & Co Inc 2,011.5 10 4.8 6 Industry Total 42,160.3 - 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 Goldman Sachs & Co 1,380.7 1* 15.9 1 Lehman Brothers 1,380.7 1* 15.9 1 Banc of America Securities LLC 1,380.7 1* 15.9 1 Barclays Capital 1,343.3 4* 15.4 1 Morgan Stanley 1,343.3 4* 15.4 1 Credit Suisse 1,343.3 4* 15.4 1 JP Morgan 541.2 7 6.2 1 Industry Total 8,713.2 - 100.0 3 Source: Thomson Financial

auto ABS 15% credit card ABS 11% real estate ABS 67% student loan ABS 6%

Citing a "new paradigm" of subprime credit losses, Standard & Poor's last week stepped up its RMBS credit surveillance and simultaneously placed a negative CreditWatch on ratings of 18 subordinate classes from 11 RMBS deals issued in 2006 - both in the subprime and Alt-A sectors. According to S&P, the new rating methodology only affects how soon a deal is placed on rating CreditWatch negative. Previously, the rating agency would not place a deal on rating CreditWatch negative if there had not been a loss to the pool.