CDOs

Even though reverse mortgages are currently still a small part of the U.S. mortgage market, they are expected to dramatically increase in the coming years.

In a move that bodes well for the rebirth of the World Trade Center area in New York City's financial district, Moody's Investors Service is rumored to be close to inking a deal to be the first major tenant in Larry Silverstein's newly opened Seven World Trade Center, which is the first building from the complex to be rebuilt since the Sept. 11 terrorist attacks.

With home price appreciation on the downturn, widespread record-tight ABS spread levels and stricter credit enhancement levels now in place on certain home equity loan deals, GSC Partners picked a fine time to launch a pair of CDOs referenced to home equity loans and make its debut as an RMBS issuer. Despite such apprehensions, the company recently priced and completed deals totaling nearly $2 billion.

Specialty finance company NewStar Financial announced last week that it has priced and closed a $500 million CLO called the NewStar Commercial Loan Trust 2006-1 CLO. The deal is secured by a portfolio of exclusively middle market assets originated by NewStar (primarily comprising first lien loans), the firm said in a statement, noting that it is retaining the CLO's equity. The structure has a five-year reinvestment period.

The U.S. economy shrugged off significant obstacles in 2005, dodging with seeming agility ongoing geopolitical uncertainty, hurricanes, rising interest rates and mounting fuel costs. In addition, the economy proved resistant to fears of falling home prices and persistent weakness in the airline and automotive industries. Even concerns regarding the potential negative impact of bankruptcy reform proved illusive. Through it all, collateral continued to demonstrate resilience throughout the majority of non-mortgage-related consumer and commercial non-mortgage-related term ABS.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 6,027.5 1 19.1 12 JP Morgan 5,062.5 2 16.1 12 Wachovia Corp 3,139.5 3 10.0 7 Deutsche Bank AG 2,690.2 4 8.5 8 Royal Bank of Scotland Group 2,169.3 5 6.9 5 Merrill Lynch & Co Inc 1,847.5 6 5.9 4 Banc of America Securities LLC 1,682.4 7 5.3 2 Barclays Capital 1,603.4 8 5.1 3 Credit Suisse 1,550.0 9 4.9 3 HSBC Holdings PLC 1,329.2 10 4.2 2 Industry Total 31,534.7 - 100.0 40 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 13,755.3 1 14.5 23 Merrill Lynch & Co Inc 12,695.7 2 13.4 18 Banc of America Securities LLC 9,548.4 3 10.1 22 Deutsche Bank AG 7,410.1 4 7.8 12 UBS 5,654.0 5 6.0 16 Credit Suisse 5,617.9 6 5.9 10 Bear Stearns & Co Inc 5,211.1 7 5.5 11 Wachovia Corp 4,213.6 8 4.4 9 Morgan Stanley 4,165.0 9 4.4 16 Lehman Brothers 4,019.1 10 4.2 7 Industry Total 94,928.4 - 100.0 184 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 8,982.0 1 25.3 13 Banc of America Securities LLC 8,235.0 2 23.2 12 JP Morgan 7,824.7 3 22.0 18 Deutsche Bank AG 2,549.9 4 7.2 7 Morgan Stanley 1,829.0 5 5.1 2 Barclays Capital 1,525.0 6 4.3 4 Credit Suisse 1,375.0 7 3.9 7 ABN AMRO 1,000.0 8 2.8 5 HSBC Holdings PLC 1,000.0 8 2.8 1 Lehman Brothers 425.0 10 1.2 2 Industry Total 35,570.5 - 100.0 54 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 Morgan Stanley 24,392.3 1 10.3 24 Lehman Brothers 23,939.3 2 10.1 56 Credit Suisse 21,373.0 3 9.0 43 Royal Bank of Scotland Group 19,038.6 4 8.0 30 Countrywide Securities Corp 16,027.4 5 6.7 19 Deutsche Bank AG 15,022.1 6 6.3 27 JP Morgan 14,805.6 7 6.2 31 Bear Stearns & Co Inc 14,735.7 8 6.2 38 Merrill Lynch & Co Inc 13,944.4 9 5.9 20 Citigroup 13,778.2 10 5.8 34 Industry Total 237,654.8 - 100.0 443 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 4,793.6 1 15.9 7 Deutsche Bank AG 4,445.0 2 14.8 7 Merrill Lynch & Co Inc 3,420.1 3 11.4 3 Credit Suisse 3,306.5 4 11.0 6 Goldman Sachs & Co 2,922.9 5 9.7 3 Banc of America Securities LLC 2,550.5 6 8.5 4 Morgan Stanley 2,538.2 7 8.4 3 Lehman Brothers 1,284.7 8 4.3 1 RBC Capital Markets 1,000.0 9 3.3 1 UBS 998.7 10 3.3 2 Industry Total 30,071.5 - 100.0 23 Source: Thomson Financial

auto ABS 0% credit card ABS 0% enterprise finance 0% equipment ABS 0% real estate ABS 100% structured settlements 0% student loan ABS 0% trade receivables 0%

Investors are soon to have another chance to buy into the first managed, publicly rated CDO backed by so-called commodity trigger swaps. Barclays Capital last week closed the roughly $100 million first offering of Everest I - the first-ever managed deal of its kind and only the second deal backed entirely by commodity trigger swaps to be publicly rated.

While the actual pace at which home price appreciation (HPA) dropped in the first quarter can vary depending on the source, nearly all market participants agree that the housing market is cooling off - with first quarter HPA estimates ranging from little more than 3% to 8.1%. And as the potential for continued Federal Reserve tightening threatens to further stifle what has been record growth in the U.S. housing market, many are beginning to wonder when the sluggishness, and uptick in rating agency prudence, might take its toll on the home equity ABS market.

Two major rating agencies last week issued ratings on what could be Russia's first public RMBS. Vneshtorgbank (VTB) secured a split BBB+'/'A1' from Fitch Ratings and Moody's Investors Service, respectively, for $74.2 million in A notes, with a 28-year legal final.

NEW YORK - ABCP volume has topped the $1 trillion mark, a welcome update at the Asset Securitization Forum's annual meeting here last week. Such a showing, however, means that competition is increasingly fierce for investors and dealers. Also, as newer ABCP structuring techniques, such as extendible notes and structured investment vehicles (SIVs) continue to boost the market's volumes, investors will have to dedicate much more time understanding the deals and the managers who run them.

FTN Financial Capital Markets and Keefe Bruyette & Woods Inc. are planning to close the 26th CDO in a series of CDOs backed by bank and insurance trust preferred securities this week. The $1 billion Preferred Term Securities XXII, Ltd. is backed by a static portfolio consisting of 66.5% trust preferred securities and senior and subordinated debentures of bank and thrifts; roughly 26% surplus notes and insurance trust preferred securities; and about 7.54% of trust preferred securities issued by REITs. Bank of New York will act as the trustee. The deal is the second this year in the PTS series, the last deal came to market March 1. Four from the series, which dates back to the year 2000, were issued last year.

Aether Holdings acquired UCC Capital Corp., which provides structured finance solutions to intellectual property focused firms. The purchase, which was completed on Tuesday last week, will provide Aether with an IP centric company acquisition platform. Robert D'Loren, who was previously UCC's president and CEO, has been named as Aether's new CEO and has been appointed to the Board of Directors. David Oros will continue as chairman.

Strictly speaking, the U.S. ABS market did not have a lot to celebrate last week. According to JPMorgan Securities's tally, year-to-date issuance amounted to $290 billion, roughly flat compared to last year. The bank also pointed to weakening fundamentals ahead for the subprime housing market, on top of an expected slowdown because of the threat of inflation.

Along with the rapid growth of CMOs and ABS came a number of processing challenges and often late and inaccurate notifications related to these transactions. In an effort amend this situation, The Depository Trust & Clearing Corp. (DTCC) has proposed a series of new initiatives aimed at solving the processing problems of the structured securities market. These new initiatives were discussed in a new white paper issued on June 8 by DTCC.

The CDO market continues to expand in leaps and bounds, and along with the expected surge in loan-only credit default swaps, one of the latest manifestations of its growth comes in the form of synthetic CLOs that uses total return swaps (TRS). This structure, the TRS CLO, is becoming more popular both with CLO managers as well as with investors, and if the loan market remains as it is today, market players expect the popularity of the TRS CLO to increase further.