CDOs

Claire Robinson won a promotion to senior managing director at Moody's Investors Service, where she will oversee the rating agency's asset finance group for the Americas, as well as its U.S. public finance group.

Rarely do the domestic and global ABS markets leave participants with little to discuss or remember from the previous year. Who would have imagined, still, that the student loan sector would produce one of the U.S. ABS market's most anticipated and talked-about structures for 2006? That is what happened with Nelnet SAFE extendible-note ABCP program. Elsewhere in the U.S., the CDO market, not resting from its vehement drive to greater profits and diversification, generated too many structures to chose just one, so ASR selected three: SURF, Everest I, and a nifty hybrid CDO from Merrill Lynch that required no triggers.

Call it safe, call it predictable, but don't dare call the Federal Family Education Loan Program (FFELP) ABS collateral type stodgy. While the student loan ABS sector pulled out all the stops for a year of issuance totaling $34 billion, the FFELP program gave the asset-backed commercial paper sector far and away the most notable deal in 2006 - that is, if the spectacle of ravenous investors beating down the issuer's door for the paper is any indication.

Energized by high demand and synthetic technology - from LCDS to CDO CDS to the ever-popular ABCDS - there was no shortage of notable deals within the U.S. CDO sector in 2006.

The one notable deal from China in 2006 was issued in the international market. Macquarie Wanda Real Estate Fund - a joint venture between Australia's Macquarie Group and Chinese property developer Dalian Wanda - in October sold the first offshore CMBS involving nine properties located in the People's Republic of China.

Russia's first mortgage backed security is remarkable for a number of reasons, but the most compelling is this: private housing in the country scarcely existed before the 90s. By historical standards, the country's move from private property to widespread home ownership to the birth of the mortgage has been more a breathless race than a gradual evolution. And last year, state-owned JSC Vneshtorgank (VTB) took the baton.

As the European securitization market matures so does its repertoire of deals. Gone are the days of extreme innovation. Instead, the market is increasingly defined by steadiness and dependability. This is demonstrated by the steadfast pricing spreads over the past year. But a lack of innovation did not mean a lackluster year - 2006 still had its share of shining stars that stood out in the record mix of deals, specifically in the CMBS market.

By November of last year, it appeared that Mexico would be a nonentity in the cross-border market for all of 2006. Domestic investors' unquenchable thirst for securitization was deterring originators from going abroad and the promise of the first cross-border RMBS was fading as originator Metrofinanciera delayed a deal over M&A matters.

Newcastle Investment Corp., a real estate investment and finance company, is planning its debut in the ABCP arena with an extendible note asset-backed commercial paper program that will execute repurchase agreements (repos) for its high quality portfolio of agency mortgages, ARMs and hybrid mortgage securities. Furthermore, it introduces a credit enhancement technique that differs distinctly from existing SLN programs.

While Ownit Mortgage chief executive Bill Dallas reportedly filed for Chapter 11 bankruptcy in order to shelter his employees, buyers of the subprime lender's mortgage-backed bonds that want compensation for poorly performing loans appear as though they will get the short end of the stick. Nearly all of the company's unsecured creditors are investors holding Ownit loans they say need to be repurchased for one reason or another, but it's unlikely the companies will see much compensation from Ownit, according to sources familiar with the matter.

With CLO managers ramping up funds in record numbers, investors have been scrambling to cash in on the diverse investment strategies that make these vehicles a safe choice for yield. However, a recent survey from Fitch Ratings found that these funds may not be as diversified and low risk as their definition would suggest. In fact, CLOs as a whole have been acquiring a high proportion of leveraged loans that are used to fund "shareholder friendly-activities," as well as loans that are light on covenants, and this could mean very unsteady investment platform in the event of a downturn.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 11,324.6 1 13.3 20 JP Morgan 11,150.3 2 13.1 23 Wachovia Corp 10,658.0 3 12.4 18 Barclays Capital 9,681.6 4 11.4 15 Deutsche Bank AG 7,784.8 5 9.2 17 Banc of America Securities LLC 6,637.5 6 7.8 10 Credit Suisse 4,066.8 7 4.8 8 HSBC Holdings PLC 3,971.7 8 4.7 5 Royal Bank of Scotland Group 3,644.0 9 4.3 8 Morgan Stanley 3,554.6 10 4.2 7 Industry Total 85,059.8 - 100.0 90 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 50,073.6 1 14.9 65 Citigroup 36,607.6 2 10.9 66 Deutsche Bank AG 30,674.1 3 9.2 63 Wachovia Corp 23,697.9 4 7.1 54 Credit Suisse 22,623.0 5 6.8 34 UBS 22,303.8 6 6.7 65 Bear Stearns & Co Inc 21,557.6 7 6.4 41 Banc of America Securities LLC 20,730.3 8 6.2 52 Morgan Stanley 19,666.3 9 5.9 71 JP Morgan 15,359.1 10 4.6 37 Industry Total 335,048.1 - 100.0 671 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 LLC 20,720.6 1 30.9 29 Citigroup 11,982.0 2 17.8 18 JP Morgan 11,859.7 3 17.7 25 Deutsche Bank AG 4,624.9 4 6.9 13 Morgan Stanley 4,055.3 5 6.0 5 Barclays Capital 3,373.8 6 5.0 8 HSBC Holdings PLC 2,749.9 7 4.1 3 Credit Suisse 2,285.0 8 3.4 10 Merrill Lynch 1,645.0 9 2.5 6 Wachovia Corp 1,124.9 10 1.8 4 Industry Total 67,148.7 - 100.0 101 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 2,125.0 1 18.4 3 Deutsche Bank AG 1,750.0 2 15.1 3 Banc of America Securities LLC 1,554.5 3 13.4 3 Barclays Capital 1,409.5 4 12.2 2 ABN AMRO 1,250.0 5* 10.8 2 Lehman Brothers 1,250.0 5* 10.8 2 Royal Bank of Scotland Group 1,000.0 7 8.7 2 Merrill Lynch 925.0 8 8.0 2 Citigroup 300.0 9 2.6 1 Industry Total 11,564.0 - 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 Lehman Brothers 68,450.3 1 11.0 166 Countrywide Securities Corp 66,904.1 2 10.8 109 Royal Bank of Scotland Group 63,037.2 3 10.2 114 Citigroup 40,622.2 4 6.6 91 Deutsche Bank AG 40,551.2 5 6.5 95 Bear Stearns & Co Inc 38,958.3 6 6.3 98 Credit Suisse 37,228.5 7 6.0 89 Merrill Lynch 37,120.4 8 6.0 55 Morgan Stanley 35,061.6 9 5.7 36 JP Morgan 32,214.8 10 5.2 72 Industry Total 619,892.6 - 100.0 1,133 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 14,994.0 1 22.6 15 Deutsche Bank AG 9,079.8 2 13.7 13 Credit Suisse 6,548.1 3 9.9 10 Banc of America Securities LLC 5,301.7 4 8.0 7 Wachovia Corp 4,871.9 5 7.3 4 Morgan Stanley 4,248.4 6 6.4 6 Goldman Sachs & Co 4,150.9 7 6.2 6 Lehman Brothers 3,873.7 8 5.8 3 Merrill Lynch 3,819.9 9 5.8 4 RBC Capital Markets 2,179.0 10 3.3 4 Industry Total 66,469.7 - 100.0 47 Source: Thomson Financial

auto ABS 10% credit card ABS 8% catatrophe bonds 0% enterprise finance 0% equipment ABS 2% real estate ABS 70% structured settlements 0% student loan ABS 8% trade receivables 1% utilities ABS 0%

The U.S. ABS market spent a lot of time in 2006 absorbing major shocks, whether it was sweeping reforms for disclosure under Regulation AB, or changes to the Higher Education Act. Next year, according to several market players, the asset-backed securitization business will deliver a few punches of its own.

The U.S. CDO sector, fueled by residential mortgage and leveraged loan collateral, grew by leaps and bounds in 2006 to an estimated $480 billion - posting a gain of roughly 57% over last year and establishing itself as a staple within fixed income.