CDOs

NEW YORK - Although an occasional annoyance to investors, extendible ABCP is the inescapable future of the conduit market, according to panelists speaking at last week's American Securitization Forum Sunset Seminar dedicated to the topic (see Observation p 18-19). Recent technological advances offering significant economic benefits to issuers are seen spreading to new sectors, regardless of whether investors feel they are adequately compensated for a risk they consider too great for the reward.

Anumber of CDO investors right now are like penny-pinching shoppers waiting for after-Christmas bargains, according to one analyst. The problem though, is that Christmas Day - the date the real estate bubble may be pricked - is a moving target.

Allegheny Energy, Inc., a Greensburg, Pa.-based utility company, filed with the West Virginia Public Service Commission last week for a financing order to issue two 15-year environmental control bonds totaling $381 million. The bonds requested, at sizes of $214 million and $167 million each, will be used to finance improvements to a power plant in Fort Martin, W.Va., according to Allegheny spokesman Allen Staggers. The bonds represent a new breed of stranded cost, or rate reduction bonds.

Accredited Home Lenders closed its recently created $1 billion Carmel Mountain Funding Trust extendable asset-backed commercial paper conduit last week and plans to quickly tap its full capacity, said Charlie Ryan, securitization coordinator at Accredited.

Stamford, Conn.-based money manager Aladdin Capital Management plans to enter the CDO market in full force as it prepares its first two ABS CDOs in the coming months. Aladdin recently added three individuals to its newly built asset-backed and commercial mortgage-backed securities team as part of its effort to expand its game into the ABS and CMBS playing field.

By Nathan Abegg, senior manager at Deloitte & Touche LLP

CMBS-backed CDO issuance could exceed $15 billion this year, up from $8 billion in 2004, according to Moody's Investors Service. While deal sizes historically have been small relative to collateralized mortgage-backed securities, at $300 million to $500 million, larger deals - exceeding $1 billion - are in the pipeline, according to Tad Philipp, a managing director at Moody's.

The U.S. ABS primary market heated up last week with $23 billion in new issues priced. Amid the sea of home equity deals to hit the market were four auto deals, including one from Harley-Davidson Motor Co., one student loan deal and one credit card deal.

Capital One Financial's first senior/subordinated non-prime auto deal hit the market last week with a big splash as it priced through guidance, likely increasing the chances Capital One will issue that particular type of deal again.

By American Securitization Forum (abridged)

Year to date as of 05/26 Term (days) 05/20 05/23 05/24 05/25 05/26 1-week

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 4,741.1 1 15.3 9 Citigroup 3,758.3 2 12.1 6 Credit Suisse First Boston 3,449.5 3 11.1 7 Banc of America Securities LLC 3,433.2 4 11.1 7 Merrill Lynch & Co Inc 3,402.4 5 11.0 6 Barclays Capital 3,195.9 6 10.3 6 Wachovia Corp 3,012.5 7 9.7 6 JP Morgan 2,802.1 8 9.0 5 Goldman Sachs & Co 1,841.0 9 5.9 2 Lehman Brothers 780.3 10 2.5 1 Industry Total 31,033.0 - 100.0 30 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 8,156.5 1 19.7 12 Citigroup 5,097.2 2 12.3 12 Morgan Stanley 3,984.6 3 9.6 16 UBS 3,442.6 4 8.3 8 Lehman Brothers 3,418.9 5 8.2 11 Bear Stearns & Co Inc 2,530.2 6 6.1 6 Goldman Sachs & Co 2,007.0 7 4.8 2 Groupe Caisses d'Epargne 1,742.0 8 4.2 2 Royal Bank of Scotland Group 1,479.1 9 3.6 3 Wachovia Corp 1,241.9 10 3.0 3 Industry Total 41,497.6 - 100.0 110 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 4,974.9 1 38.1 11 Citigroup 2,874.8 2 22.0 6 Morgan Stanley 1,666.5 3 12.8 2 Barclays Capital 1,049.1 4 8.0 8 Deutsche Bank AG 959.8 5 7.4 8 Credit Suisse First Boston 488.3 6 3.7 3 Lehman Brothers 375.0 7 2.9 1 Banc of America Securities LLC 286.6 8 2.2 4 Merrill Lynch & Co Inc 212.6 9 1.6 2 Societe Generale 100.0 10 0.8 1 Industry Total 13,062.4 - 100.0 30 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 1,191.7 1 18.9 2 Deutsche Bank AG 1,191.7 1 18.9 2 Banc of America Securities LLC 750.0 3 11.9 1 Lehman Brothers 725.8 4 11.5 1 JP Morgan 725.8 4 11.5 1 Barclays Capital 725.8 4 11.5 1 HSBC Holdings PLC 566.7 7 9.0 1 Citigroup 212.0 8 3.4 1 Industry Total 6,319.5 - 100.0 6 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 Bear Stearns & Co Inc 22,792.0 1 9.8 38 Morgan Stanley 22,335.2 2 9.6 26 Lehman Brothers 21,740.6 3 9.3 52 Royal Bank of Scotland Group 21,111.4 4 9.1 34 Credit Suisse First Boston 19,809.1 5 8.5 46 Countrywide Securities Corp 18,767.1 6 8.0 23 Deutsche Bank AG 16,796.8 7 7.2 33 Banc of America Securities LLC 12,854.4 8 5.5 28 Merrill Lynch & Co Inc 12,018.7 9 5.2 15 Citigroup 11,312.1 10 4.9 24 Industry Total 233,334.8 - 100.0 413 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 3,134.2 1 15.8 4 Deutsche Bank AG 2,773.3 2 14.0 4 Morgan Stanley 2,757.6 3 13.9 3 Citigroup 2,482.7 4 12.5 5 Credit Suisse First Boston 2,196.2 5 11.1 3 Merrill Lynch & Co Inc 1,839.8 6 9.3 2 UBS 1,827.7 7 9.2 4 Lehman Brothers 1,012.4 8 5.1 1 JP Morgan 983.8 9 5.0 2 Goldman Sachs & Co 806.2 10 4.1 2 Industry Total 19,813.8 - 100.0 16 Source: Thomson Financial

auto ABS 19% credit card ABS 6% global MBS 5% real estate ABS 59% student loan ABS 7% other 3%

Textron Financial Corp. returned to the ABS market last week for the first time in three and a half years to a cool reception as its scheduled $1 billion private dealer floorplan deal was downsized to $750 million and saw its spreads widened at the last minute. The Banc of America Securities led deal, priced its three-year senior tranche at 12 basis points over one-month Libor last Wednesday, three basis points outside of talk set in the nine basis point area over Libor. The single-A rated subordinated class, meanwhile, priced inside of expectations at 32 basis points over Libor, versus talk in the mid 30 basis point area over Libor.

Crown Castle International is prepping a $1.9 billion private placement backed by cellular tower lease receivables via Morgan Stanley, the proceeds for which will be used to fund a tender offer for $1.4 billion in outstanding high-yield debt, the company announced last week. Should the transaction go as planned, Crown Castle will be the second issuer to securitize its tower lease revenues, following the pair of offerings Global Signal priced last year.