CDOs

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Deutsche Bank AG 1,750.0 1 16.6 3 Banc of America Securities LLC 1,554.5 2 14.7 3 Barclays Capital 1,409.5 3 13.3 2 ABN AMRO 1,250.0 4* 11.8 2 Lehman Brothers 1,250.0 4* 11.8 2 JP Morgan 1,125.0 6 10.7 2 Royal Bank of Scotland Group 1,000.0 7 9.5 2 Merrill Lynch & Co Inc 925.0 8 8.8 2 Citigroup 300.0 9 2.8 1 Industry Total 10,564.0 - 100.0 9 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 60,259.0 1 11.8 133 Countrywide Securities Corp 49,152.7 2 9.7 83 Royal Bank of Scotland Group 45,530.3 3 9.0 102 Citigroup 36,423.9 4 7.2 84 Credit Suisse 35,692.0 5 7.0 84 Deutsche Bank AG 33,296.3 6 6.5 80 Morgan Stanley 30,248.8 7 5.9 32 Merrill Lynch & Co Inc 29,355.2 8 5.8 49 Bear Stearns & Co Inc 28,185.5 9 5.5 85 Goldman Sachs & Co 26,965.8 10 5.3 65 Industry Total 508,837.3 - 100.0 976 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 10,609.6 1 19.3 12 Deutsche Bank AG 7,642.2 2 13.9 11 Credit Suisse 5,627.8 3 10.3 9 Banc of America Securities LLC 4,720.6 4 8.6 6 Wachovia Corp 3,951.6 5 7.2 3 Lehman Brothers 3,873.7 6 7.1 3 Merrill Lynch & Co Inc 3,819.9 7 7.0 4 Goldman Sachs & Co 3,809.3 8 6.9 5 Morgan Stanley 3,328.1 9 6.1 5 RBC Capital Markets 2,179.0 10 4.0 4 Industry Total 54,911.4 - 100.0 40 Source: Thomson Financial

auto ABS 11% credit card ABS 8% enterprise finance 0% equipment ABS 2% real estate ABS 69% structured settlements 0% student loan ABS 8% trade receivables 1% utilities ABS 0%

Subprime mortgage lender New Century Financial Corp. tapped Taj Bindra, Washington Mutual's executive vice president of mortgage banking, capital markets and servicing operations to replace Patti Dodge, its chief financial officer. Bindra's new role as CFO of New Century is effective Nov. 15. Dodge announced, following the second quarter, that she planned to leave her post as CFO, in exchange for a position as executive vice president of investor relations at the Irvine, Calif.-based lender. New Century also hired Ralph Melbourne, formerly director of strategic initiatives at Washington Mutual, as senior vice president, consumer direct division for its retail lending subsidiary Home123 Corp.

More than 3,000 industry attendants are expected at the JW Marriott/Ritz Carlton Grande Lakes Resort, for this week's Information Management Network twelfth annual ABS East conference. Participants are expected to grapple with industry conundrums that range from the cyclical, such as concerns about disruptions in the housing market, to best practices for dealing with emerging asset classes like covered bonds. Among the registered attendees, IMN estimates that some 1,300 are issuers and investors.

As expected, CDO managers feasted on the recent bout of asset-backed credit default swap spread widening - producing a two-fold effect of reeling spreads back in and pushing the burgeoning CDO pipeline out.

Constant proportion debt obligations (CPDOs), variations of CPPI structures, are one of the newest evolutionary steps to hit the CDO market. The spin helps to revise some of the rating and valuation challenges posed by the constantly changing nature of CPPI -- a move that is expected to garner a wider investor base and thus more liquidity for the sector. So far, all of the deals have involved investment grade corporate indices as the underlying asset. The addition of a manager to the so far static sector could be the next step in CPDO development. An innovator in the CPPI sector, ABN Amro has in place what was likely the first CPDO. Called Surf, the CPDO came to market as a three-tranche deal with a seven-year expected maturity, yielding 200 basis points. Not only are the high-yielding coupons attractive to investors, but an equally appealing feature is the ability for buyers to hold it on their balance sheets without placing it in a so-called alternative investments bucket. This is achieved because the CPDO structures offer a highly rated, stated coupon payment. The main difference between credit CPPI and CPDO structures that achieves those objectives are the lack of principal protection in the form of cash-out at the bond floor and the leverage mechanism, according to Cian Chandler, an analyst at Standard & Poor's in London. While the cost of principal protection in a CPPI structure is constantly referenced and dictates the total notional amount invested, CPDO leverage is unrelated to the bond floor, according to Chandler, who issued a report on the topic last week. There is a negative cash-out point in the structure, but it is typically set much lower than in CPPI deals, at 10% and 20% of note par. If reduction in the net asset value led to a cash-out scenario, the structure would unwind, with the investor taking a mark-to-market loss. Perhaps the starkest contrast to CPPI, CPDO strategies assume maximum leverage at the beginning of the transaction, with the exposure level decreasing as maturity approaches. While reserve fund availability in CPPI structures dictate the volume of so-called risky protection sold at any point during the transaction, CPDO structures follow a different formula. CPDOs use the difference between the net asset value of the underlying portfolio and the "cash-in" point, which is the present value of all future interest coupons plus par, according to Chandler. A key point is that the interest coupons provide CPDO structures with a fixed income that is unrelated to income generated, unlike CPPI structures. When the net asset value of the CPDO's underlying portfolio reaches the cash-in point, exposure to risky assets is reduced to zero, and the portfolio value is then invested at a risk-free rate, paying coupons and fees until maturity, upon which the note par is redeemed. This shortfall between the cash-in point and the portfolio net asset value drives the notional that can be leveraged. Because the leverage is derived from the ratio of the shortfall to the current credit spread on the risky asset, it is the inverse leverage formula to CPPI structures, which reduce notional exposure upon negative performance. Rating agencies have had a difficult time grappling with rated CPPI notes because in the "cash out" phase of CPPI transactions, interest is not paid until maturity -- a scenario that is viewed as a default.(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

Cohen & Co. last week opened a Los Angeles office for its middle market loan and CLO collateral management unit Emporia Capital Management. Cohen snagged David Ligon and Gary Kirshner from Union Bank of California, where they were group heads of the bank's equity sponsored lending team. The two join Cohen as managing directors.

UnumProvident Corp., a group and individual disability insurance provider, completed an insurance-linked ABS deal backed by premiums on long-term disability insurance policies. Proceeds from the transaction will finance a portion of the insurer's capital reserve requirements. The deal closed last Wednesday.

Trading on the ABS market was fairly light last week, as more than 3,000 market professionals prepared to head out to Orlando, Fla for Information Management Network's ABS East conference. By midweek, about $10 billion in deals were announced, and of that $3.8 billion had priced.

Working Capital Management Co., a fully supported asset-backed commercial paper conduit sponsored by Mizuho Corporate Bank, raised its purchase limit to $5 billion, from $3 billion. While it is not expected to substantially impact the ABCP sector, market sources familiar with the situation say that it represents the bank's more aggressive, albeit measured, commitment to acquiring for its securitization platform.

Wachovia Securities CDO analysts last month sought to find a new way to answer an old question: Is there a method to project future new-issue CDO performance using historical data? Their ultimate finding was yes, although with some caveats.

One year after bankruptcy reform legislation passed - changing the rules for who can file for bankruptcy and how it must be done - bankruptcy filings have stayed lower for longer than analysts expected. Filings are expected to average 12,000 to 13,000 per week for the rest of the year, making the full-year average 60% behind historical averages.

The Financial Accounting Standards Board (FASB) lifted a huge burden from MBS and ABS investors' shoulders last week by exempting those bonds from mark to market accounting requirements under FAS 155. Industry participants were concerned that FAS 155 contained accounting implications that would affect market liquidity and spreads for those securities.

Mortgage loans originated to U.S. borrowers this year and in late 2005 - marked by an environment of slowing home price appreciation and desperate mortgage brokers - are not performing as well as those loans originated in 2003 and 2004. In fact, subprime mortgage loans originated in the first quarter of this year were experiencing the level of foreclosures within six to seven months that loans originated in 2004 had at 13 months, Bear Stearns analysts Gyan Sinha and Mary Ann Thomas said last week.

Market sources expected new issuance to total slightly more than $15 billion last week, thanks in no small part to continued demand for HEL tranches that will feed into CDO transactions. By press time, about a third of expected issuance had hit the market and priced.

As the U.S. mortgage market continues its ugly decline, Countrywide Financial Corp. is looking to find profits in other lines of business - particularly those within capital markets. In a move that would further align it with the vertical integration strategy currently underway among Wall Street investment banks, the Calabasas, Calif.-based mega-lender may be looking to acquire an asset management business. This move is coupled with continuing to extend its U.S. Treasurys primary dealership to include derivatives and futures.

As the search for yield continues, both U.S. and European investors are seeking new kinds of exposure to CDO equity tranches. Zero-coupon equity and rated equity pieces in investment grade corporate synthetic transactions are on the rise in Europe, Derivative Fitch noted last week. The rating agency said it has received several inquiries from investors wishing to structure rated equity transactions.

Bank of America brought to the European market earlier this month the $546 million Pembridge Square Finance 2006-1, an interesting synthetic CDO referencing a $2.5 billion notional portfolio of both corporate obligations and ABS. KBC Financial Products is managing the deal, which was rated by Moody's Investors Service and Fitch Ratings.