CDOs

LAGUNA NIGUEL, CALIF. - Credit opportunity funds - defined as a fund that allows the manager to rejigger his or her asset mix - are employing that flexibility to swoop in and purchase discarded CDO bonds, said Dale Leshaw, head of credit at Alcentra, during a panel discussion at Opal Financial Group's CDO Summit held here last week.

The U.S. ABS primary market posted another extraordinary week, generating $23 billion in issuance and continuing the predicted flood of paper as issuers rushed to get deals finished before the Jan. 1 implementation date of the Securities and Exchange Commission's Regulation AB.

After nearly two years of leaping regulatory hurdles, Houston-based CenterPoint Energy priced a $1.25 billion rate reduction bond offering last week. The deal is to be the first chunk off a $1.85 billion RRB program approved this spring, with the next $600 million offering slated to hit the market sometime in 1Q05. Credit Suisse First Boston, Lehman Brothers and RBS Greenwich Capital led the current deal, which priced Friday morning, after ASR went to press.

Much attention lately has been paid to the prospective performance of subprime mortgages originated to borrowers this year. The 2005 vintage, some say, consists of borrowers that either needed to refinance to avoid payment shock from earlier originated mortgages, or, borrowers that couldn't get a loan until lending standards reached down far enough to scrape them off the credit barrel's bottom.

Managing a loan or bond portfolio is a far cry from what it used to be, thanks to recent market developments such as the rapid growth of credit derivatives.

The credit derivatives market has grown so exponentially (by 86% in 2005 alone) that its notional value of $5.3 trillion now tops the $5.0 trillion of the entire US corporate bond market, according to a Fitch Ratings survey released recently. In the process, it has thrown an occasional scare into the capital markets and raised more than a few eyebrows, especially among regulators. That situation will likely intensify in 2006, as credit derivatives look to get even riskier, and have an even larger and potentially more volatile impact on the high yield bond market.

Year to date as of 12/09 Term (days) 12/05 12/06 12/07 12/08 12/09 1-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 10,482.7 1 13.7 16 Deutsche Bank AG 8,969.1 2 11.7 16 Citigroup 8,299.9 3 10.8 14 Banc of America Securities LLC 8,252.2 4 10.8 13 Merrill Lynch & Co Inc 7,943.7 5 10.4 10 Wachovia Corp 7,642.0 6 10.0 15 Barclays Capital 5,998.2 7 7.8 11 Credit Suisse First Boston 5,028.5 8 6.6 10 Goldman Sachs & Co 3,564.1 9 4.7 4 HSBC Holdings PLC 3,334.4 10 4.4 5 Industry Total 76,634.0 - 100.0 74 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 20,440.3 1 15.8 31 Citigroup 15,566.2 2 12.0 34 Wachovia Corp 14,272.5 3 11.0 25 Morgan Stanley 10,237.5 4 7.9 34 Banc of America Securities LLC 9,253.0 5 7.1 31 Bear Stearns & Co Inc 9,100.2 6 7.0 23 Deutsche Bank AG 7,080.6 7 5.5 17 Credit Suisse First Boston 6,850.0 8 5.3 14 UBS 6,356.8 9 4.9 15 JP Morgan 6,279.6 10 4.9 17 Industry Total 129,519.9 - 100.0 298 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 12,065.4 1 21.9 24 Citigroup 10,296.9 2 18.7 24 Barclays Capital 6,388.9 3 11.6 18 Morgan Stanley 5,137.5 4 9.3 7 Banc of America Securities LLC 4,459.1 5 8.1 16 Deutsche Bank AG 4,376.4 6 7.9 19 Lehman Brothers 3,150.0 7 5.7 7 Credit Suisse First Boston 2,450.0 8 4.5 8 ABN AMRO 2,083.2 9 3.8 9 Royal Bank of Scotland Group 1,285.8 10 2.3 5 Industry Total 55,108.1 - 100.0 103 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 2,441.7 1 18.3 4 Deutsche Bank AG 2,418.6 2 18.1 4 ABN AMRO 1,643.6 3 12.3 3 Barclays Capital 1,492.5 4 11.2 2 Credit Suisse First Boston 1,243.6 5 9.3 2 Banc of America Securities LLC 750.0 6 5.6 1 Lehman Brothers 725.8 7 5.4 1 JP Morgan 725.8 7 5.4 1 HSBC Holdings PLC 566.7 9 4.2 1 Merrill Lynch & Co Inc 375.0 10 2.8 1 Societe Generale 375.0 10 2.8 1 Industry Total 13,350.2 - 100.0 13 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 Countrywide Securities Corp 62,847.1 1 10.5 76 Bear Stearns & Co Inc 57,793.3 2 9.7 132 Lehman Brothers 57,757.8 3 9.7 115 Credit Suisse First Boston 52,312.6 4 8.7 110 Royal Bank of Scotland Group 51,086.2 5 8.5 83 Morgan Stanley 43,777.4 6 7.3 55 Deutsche Bank AG 40,624.0 7 6.8 79 Citigroup 35,281.4 8 5.9 88 Merrill Lynch & Co Inc 33,069.9 9 5.5 50 Banc of America Securities LLC 27,378.3 10 4.6 64 Industry Total 598,632.8 - 100.0 1,175 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 12,939.4 1 22.5 17 Deutsche Bank AG 8,103.3 2 14.1 12 Credit Suisse First Boston 5,376.3 3 9.4 8 Banc of America Securities LLC 5,330.5 4 9.3 9 Merrill Lynch & Co Inc 4,828.8 5 8.4 5 Morgan Stanley 4,526.8 6 7.9 5 Goldman Sachs & Co 3,386.1 7 5.9 6 JP Morgan 3,010.6 8 5.2 6 Lehman Brothers 2,705.7 9 4.7 3 UBS 2,527.7 10 4.4 5 Industry Total 57,437.0 - 100.0 46 Source: Thomson Financial

auto ABS 15% credit card ABS 9% global MBS 3% real estate ABS 60% student loan ABS 9% other 4%

LAGUNA NIGUEL, CALIF. - The towering wall of liquidity that continues to prop up the U.S. CDO market could begin to crumble in 2006, as credit concerns over the health of the residential housing and corporate credit markets begin to sour investor appetite, said participants at this year's Opal Financial Group CDO Summit held here last week.

LAGUNA NIGUEL, CALIF. - As an increasing number of commercial real estate investors become first-time CDO issuers, investors are wondering: Are these deals much more than a form of secured financing? Commercial real estate CDO issuance this year is expected to triple to an estimated $14 billion to $15 billion, while upping its share of the CDO market to 10% from just 5% last year.

LAGUNA NIGUEL, CALIF. - While most seem to think the residential -heavy CDO market will naturally shift toward deals with more diverse pools of assets as investors voice concern over the U.S. housing market, some are noting to the contrary.

LAGUNA NIGUEL, CALIF. - As the market prepared for the Dec. 1 implementation of new rules governing the securities offering process, a question lingered among structured finance professionals - whether the reforms governing the offering process for public deals will spill over to the 144A market.

LOS ANGELES - For the first time in a long while, volatility has returned to the home equity ABS market. And with that volatility, some would argue, comes a more challenging terrain for ABS CDO managers.

U.S. Bancorp bolstered its status as one of the nation's major ABS and MBS trustees last week when it announced the acquisition of Wachovia Corp.'s corporate trust and institutional custody businesses. With this purchase, U.S. Bancorp will become the second largest ABS and MBS trustee, in terms of par amount of securities and number of issues, behind Deutsche Bank Trust Co. Americas. The deal, executed through its U.S. Bank subsidiary, will give the Minneapolis-based trustee administration of $180 billion worth of ABS and MBS spread over 317 issues.