CDOs

Hoping to profit from the CDO expansion wave, Wilmington Trust Corp. has formed a subsidiary to operate most of its CDO business. The firm recruited from independent capital markets and risk management consultancy and hired its founder and CEO and president to lead the CDO administration effort at Wilmington.

The asset securitization market has seen several key changes since the beginning of the year, but that is not at all reflected in the lineup of lead manager rankings. Citigroup Global Markets tightened its iron grip on the title as top lead manager of ABS deals by claiming first place in the ranking for the year to date, according to data from Thomson Financial.

Final regulatory guidance for federally chartered bank lenders on so-called non-traditional mortgage products came forth to a relatively receptive market late last month. The guidelines were little changed from those proposed last December.

With the ABS market coming out of one holiday weekend and going into another, plus historical seasonal slowdowns in activity, trading desks were fairly quiet last week. At last tally, market professionals estimated that new issuance would not amount to more than $15 billion.

Merrill Lynch dominated CDO underwriting in the third quarter when it managed more than $14.7 billion worth of deals and increased its market share to 18.2%. In the first three quarters of this year, the investment bank has brought a total of $34.6 billion worth of deals to the market - almost doubling the $18.3 billion it did in the first three quarters of last year, according to data maintained by Thomson Financial. Total CDO issuance as of the third quarter was nearly $227 billion, completely eclipsing the $103.6 billion in CDOs issued to the market by the third quarter in 2005.

After doubling its assets under management and the number of its employees, then consolidating its various businesses into three sectors, Florham Park, N.J.-based GSC Partners has changed its name to GSC Group.

President George W. Bush signed the Credit Rating Agency Reform Act into law last week, setting in motion substantial changes that could revamp the rating agency business by next year.

NEW YORK-Widespread talk of a meltdown in the U.S. housing market - and the effects it might have on the structured finance market through the RMBS sector - have not diminished the popularity of carry trades in the cash CDO market. Indeed, the power play continues to attract a lot of hedge fund and similar fast-money players, said several analysts at the Bond Market Association's (BMA) CDO Investors Conference held here last week.

The International Swaps and Derivatives Association last week unveiled a protocol that will allow cash settlement across a broad spectrum of credit derivative products - including single name index tranches and plain vanilla credit derivatives. The protocol is essentially the same as those used for half-a-dozen credit events since the May 2005 bankruptcy of automotive supplier Collins & Aikman Corp. to settle covered index trades.

Commercial loan provider CapitalSource has priced its most flexible ABS transaction to date, a $1.5 billion revolving cash flow CLO.

Maxim Group is preparing to bring its first CDO to the market following the departure several months ago of its CDO group head Wing Chau. Maxim shelved its CDO group, Maxim Advisory, after Chau and several key staff members left. Now, under the name Maxim Capital Management, and with former Bear Stearns managing director Doug Jones at its head as president and chief investment officer, the team is preparing to emerge again as a regular CDO manager.

Far from going quietly into the night, the third quarter of the ABS market came to a close with a final week that saw slightly wider HEL spreads and the absence of Fitch Ratings from a stream of home equity loan ABS deals.

Driven by investor demand and the availability of new structures, commercial real estate CDO issuance has reached nearly $30 billion so far this year, compared to only $14.5 billion in 2005 and $6.4 billion in 2004. While the sector has continued to perform well, Fitch Ratings last week warned that the pace of upgrades it has been enjoying is not likely to continue.

Still on a roll in the world of CLO issuance, private equity firm The Carlyle Group announced the close of its ninth U.S. high yield fund last week Carlyle High Yield Partners IX (CHYP IX).

Perils associated with natural disasters have become more intense since 1997. Just as the insurance-linked securities sector has adjusted to these changes by developing new structures to absorb risks associated with such events as winter/ice storms, floods and tornadoes, Moody's Investors Service recently unveiled its expanded approach to rating the bonds.

CLO and leveraged loan spreads are expected to remain at or near tights as credit fundamentals in the corporate sector remain robust against a backdrop of deterioration within the U.S. housing market, Bear Stearns analysts wrote last week.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 10,300.2 1 17.0 20 Citigroup 8,956.9 2 14.8 14 Wachovia Corp 6,815.8 3 11.2 13 Barclays Capital 6,739.9 4 11.1 11 Deutsche Bank AG 5,395.6 5 8.9 12 Banc of America Securities LLC 4,248.3 6 7.0 8 Royal Bank of Scotland Group 4,019.0 7 6.6 8 Credit Suisse 3,466.3 8 5.7 7 HSBC Holdings PLC 2,389.3 9 3.9 3 Merrill Lynch & Co Inc 1,847.5 10 3.0 4 Industry Total 60,676.6 - 100.0 68 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 & Co Inc 29,596.9 1 13.7 43 Citigroup 24,322.6 2 11.3 41 Deutsche Bank AG 21,033.2 3 9.7 28 Wachovia Corp 14,789.8 4 6.8 36 Banc of America Securities LLC 14,124.0 5 6.5 30 Credit Suisse 13,572.0 6 6.3 21 Bear Stearns & Co Inc 12,863.1 7 6.0 25 Groupe Caisses d'Epargne 11,424.1 8 5.3 14 Morgan Stanley 11,341.8 9 5.3 38 UBS 10,786.1 10 5.0 46 Industry Total 215,988.7 - 100.0 399 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 15,645.6 1 29.4 22 Citigroup 9,982.0 2 18.8 15 JP Morgan 9,674.7 3 18.2 21 Morgan Stanley 3,529.0 4 6.6 4 Deutsche Bank AG 3,424.9 5 6.4 10 Barclays Capital 3,096.8 6 5.8 7 Credit Suisse 2,285.0 7 4.3 10 HSBC Holdings PLC 1,999.9 8 3.8 2 ABN AMRO 1,000.0 9* 1.9 5 Merrill Lynch & Co Inc 1,000.0 9* 1.9 4 Industry Total 53,197.4 - 100.0 78 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 Deutsche Bank AG 1,750.0 1 21.3 3 ABN AMRO 1,250.0 2* 15.2 2 Lehman Brothers 1,250.0 2* 15.2 2 Royal Bank of Scotland Group 1,000.0 4* 12.2 2 Banc of America Securities LLC 1,000.0 4* 12.2 2 Barclays Capital 855.0 6 10.4 1 JP Morgan 500.0 7 6.1 1 Merrill Lynch & Co Inc 300.0 8* 3.7 1 Citigroup 300.0 8* 3.7 1 Industry Total 8,205.0 - 100.0 7 Source: Thomson Financial