CDOs

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 20.1 7 Deutsche Bank AG 3,323.8 2 13.9 4 Banc of America Securities LLC 2,550.5 3 10.7 4 Credit Suisse 2,466.6 4 10.4 4 Merrill Lynch & Co Inc 2,301.0 5 9.7 2 Goldman Sachs & Co 1,803.8 6 7.6 2 Morgan Stanley 1,537.4 7 6.5 2 Lehman Brothers 1,284.7 8 5.4 1 UBS 998.7 9 4.2 2 JP Morgan 769.3 10 3.2 1 Industry Total 23,840.7 - 100.0 17 Source: Thomson Financial

auto ABS 9% credit card ABS 9% enterprise finance 0% equipment ABS 1% real estate ABS 71% structured settlements 1% student loan ABS 9% trade receivables 1%

What is being called a complete misunderstanding by a district court judge of a credit derivatives contract is causing some to question the clarity of credit default swap documentation. The Southern District Court of New York in February ruled that the French bank Societe Generale, as a protection seller in a CDS transaction, should pay the buyer and plaintiff Aon Financial Products, a division of Aon Corp., $10.1 million despite its failure to deliver bonds to SG. According to industry professionals, the decision was based on an entirely separate derivatives contract and viewed SG as more of a guarantor than a CDS party. SG filed an appeal to the decision in March, and oral argument is expected to begin in late August or September.

In another sign of a booming CDO market, a handful of credit derivative product companies (DPCs) are cropping up and offering credit enhancement products similar to those offered by monoline bond insurers.

LOS ANGELES - Despite the phenomenal surge in asset-backed securities credit derivative issuance, some West Coast market participants say they are wary to jump into either the single name or index markets until the sector can offer more stability. While some are choosing to dip a foot in, others are staying out completely.

LOS ANGELES - As industry representatives work to form a standardized framework for trading credit default swaps that reference CDOs, perhaps the biggest roadblock to completion is how to handle the write-down provision of the swaps. A CDO is not immediately written down following a credit event, making it difficult for parties betting on the deal's performance to either collect or make payments in a timely matter, said speakers at the Asset Securitization Forum's Sunset Seminar held here last week.

Despite damp and gloomy weather for much of last week, the ABS market appeared to get ready for the official start of summer. Issuance picked up the pace last week, with $11 billion in offerings at press time.

Fitch Ratings last week released for comment new interest rates stress criteria for structured finance transactions involving USD Libor. The key difference between the proposed methodology and the way Fitch currently applies interest rate stress criteria to ratings is a switch from historical data to the use of forward-looking swap market data - an information source widely employed across the structured finance market.

After resolving a few accounting issues, including the costs of utility poles, the Florida Public Service Commission gave the go ahead for Florida Power & Light to finance its costs of storm recovery from 2004 to 2005 through a securitization of about $700 million, after estimating that storm recovery costs reached $1.13 billion.

Loan sale advisor DebtX has been awarded a patent by the United States Patent and Trademark Office for its online loan sale and debt trading exchange program. This protects DebtX's innovations relating to due diligence, loan sales and debt trading that has played an important role in transforming the way commercial loans are bought and sold, DebtX said in a statement.

The non-consolidation of special purpose entities with the seller of financial assets is a prerequisite of every properly structured securitization transaction.

More consumers are using electronic disbursement services through the telephone and Internet to make last minute payments on credit cards, mortgages and other bills, according to a survey completed in April.

Responding to market participants' demand for more precise and granular measures of risk, Fitch Ratings conducted a study of the level of program-wide credit enhancement (PWCE) with a sample of large, diverse multi-seller ABCP programs in the U.S. Using VECTOR CP as the analytical tool, the study suggests that many partially-supported multiseller ABCP programs in the U.S. maintain excess levels of PWCE. This information should be of comfort to investors as it confirms the low level of risk in established U.S. multiseller programs. In addition, multiseller ABCP program sponsors may find the application of VECTOR CP useful, as it can compliment their internal credit scoring and support their risk and regulatory management objectives. A more detailed discussion with respect to the modeling assumptions and results will be presented in a report to be published by end of the month.

The Carlyle Group announced last week that it has hired John Stomber as a managing director in the leveraged finance group in New York. Stomber previously worked at Cerberus Capital Management as a managing director focused on structured finance transactions and deals with banking and securities firms.

Gun Hill Road, a $600 million securitization of revenues from film copyrights, received decent reviews last seek. The positive feedback comes several months after Deutsche Bank underwrote the transaction last January. The bank is also preparing a follow-up transaction, called Gun Hill Road II.

Babson Capital Management has closed the Connecticut Valley Structured Credit CDO III, a $400 million collateralized debt obligation (CDO) that will consist primarily of BBB rated CDO debt securities with a focus on the collateralized loan obligation sector. Citigroup Global Markets arranged the transaction.

While most industry participants have come to the conclusion that the U.S. housing market is unlikely to post rapid price declines on a nation-wide scale, Standard and Poor's last week released an updated simulation of how the RMBS market would perform in such a scenario - otherwise known as the ominous housing bubble burst.

The Bond Market Association announced last week that Robbin Conner has been appointed vice president and assistant general counsel. Conner, who will report to BMA associate general counsel Lynnette Hotchkiss, will also be the staff advisor to the Association's MBS and securitizaed products division. He will focus on the division's legal, regulatory and market practice initiatives that include such areas as MBS fails, good delivery guidelines, nontraditional mortgage products and credit default swaps of ABS.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 5,839.9 1 23.0 12 JP Morgan 3,828.6 2 15.1 10 Wachovia Corp 2,286.4 3 9.0 5 Deutsche Bank AG 2,020.4 4 7.9 7 Merrill Lynch & Co Inc 1,847.5 5 7.3 4 Barclays Capital 1,705.7 6 6.7 4 Credit Suisse 1,550.0 7 6.1 3 Royal Bank of Scotland Group 1,479.3 8 5.8 3 Banc of America Securities LLC 1,374.9 9 5.4 1 Morgan Stanley 997.5 10 3.9 2 Industry Total 25,435.6 - 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 Citigroup 12,433.7 1 16.8 20 Merrill Lynch & Co Inc 9,089.5 2 12.3 12 Banc of America Securities LLC 7,206.9 3 9.8 18 Deutsche Bank AG 6,810.1 4 9.2 11 UBS 4,824.0 5 6.5 13 Bear Stearns & Co Inc 4,685.3 6 6.3 10 Morgan Stanley 4,356.3 7 5.9 17 Credit Suisse 4,317.9 8 5.9 8 JP Morgan 2,610.9 9 3.5 12 Wachovia Corp 2,557.3 10 3.5 7 Industry Total 73,857.2 - 100.0 151 Source: Thomson Financial