CDOs

U.S. cashflow and synthetic CDOs experienced an uptick in downgrades and fewer upgrades during the first quarter compared to 4Q04, according to a recent report by Standard & Poor's. Driving downgrades were ABS CDOs, which experienced the highest downgrades to upgrades ratio the sector has ever seen -accounting for 23 of the 34 CDO downgrades initiated by S&P in the first quarter. Upgrades were fueled by U.S. cashflow arbitrage corporate high-yield transactions, with a total of 14 out of 27 upgrades. S&P downgraded 18 CDOs in 4Q04, and upgraded 24.

The U.S. ABS primary market priced just $2 billion last week as an interest rate hike, a surprising Treasury announcement, high-profile corporate downgrades and pending employment numbers and conspired to keep things quiet.

Now that financial services company Clayton Services, Inc. and credit risk management firm The Murrayhill Co. have merged to form Clayton Holdings, Inc., the combined entity will look to make a push into the CDO sector, according to its new chief executive.

Long Beach Acceptance Corp. would like to note that in a story titled "Morgan Stanley stacks up major auto issuer, individual deal performance," Morgan Stanley researchers used incorrect data in their assessment, mistakenly reporting delinquency and loss data leading to incorrect numbers in its gross default and net loss assessments.

Analysts with Fitch Ratings took a broad look at the regulatory and legislative environment surrounding the ABS market and deemed it generally non threatening for the time being. On a conference call held last week, the analysts opined on Securities & Exchange Commission's Regulation AB, the newly enacted bankruptcy reform and the reauthorization of the Higher Education Act. Though each will impact deal performance in their own ways and to varying degrees, the analysts did not give any indication that any of the issues would cause immediate changes to their ratings assessments.

Spreads on structured finance CDOs tightened another two basis points last week, to 30 basis points on triple-A rated notes, landing at historically tight levels - 10 basis points tighter than six months ago, and 20 basis points tighter from a year ago according to Morgan Stanley. Strong investor demand continues to fuel the tight spreads, despite the argument by some that investors are not getting compensated for the risk in the underlying collateral.

Terwin Money Management LLC expects to close its first ABS CDO of the year - Northwall Funding CDO 1 Ltd. this month. The $300 million deal will be the fourth ABS CDO for San Francisco-based Terwin, all of which have been underwritten by Merrill Lynch.

Researchers from Morgan Stanley delved deep into the obscure realm of post-NIM securities, last week. Post-NIMs, or "baby equity," offer an attractive alternative to mortgage derivatives for ABS and MBS investors seeking yield, claims the firm. "We believe that post-NIM residuals should not be considered an off-the-run market, but a clear alternative to traditional yield enhancers," write Morgan Stanley researchers, who estimate $10 billion worth of post-NIMs are being produced each year.

Three years ago, fraudulent behavior related to a few deals in the structured finance market turned a spotlight on the role of the trustee, and the obscure world of deal document management has never been the same since. "We had to go out and do a better job of explaining the role of the trustee," said Joseph Giordano, senior vice president and head of JPMorgan Chase's Worldwide Securities Services.

Year to date as of 05/05 Term (days) 04/29 05/02 05/03 05/04 05/05 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 4,207.7 1 15.5 8 Credit Suisse First Boston 3,449.5 2 12.7 7 Merrill Lynch & Co Inc 3,402.4 3 12.5 6 Citigroup 3,206.3 4 11.8 5 Barclays Capital 3,195.9 5 11.8 6 Banc of America Securities LLC 2,899.9 6 10.7 6 JP Morgan 2,268.8 7 8.4 4 Wachovia Corp 1,837.0 8 6.8 4 Goldman Sachs & Co 1,289.0 9 4.8 1 Lehman Brothers 780.3 10 2.9 1 Industry Total 27,153.5 - 100.0 26 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 6,848.8 1 19.4 10 Citigroup 4,165.6 2 11.8 10 Morgan Stanley 3,959.6 3 11.2 14 UBS 3,442.6 4 9.7 8 Lehman Brothers 2,714.2 5 7.7 9 Bear Stearns & Co Inc 2,271.2 6 6.4 5 Groupe Caisses d'Epargne 1,742.0 7 4.9 2 Goldman Sachs & Co 1,500.0 8 4.2 1 Wachovia Corp 1,241.9 9 3.5 3 JP Morgan 987.3 10 2.8 2 Industry Total 35,338.0 - 100.0 90 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 4,025.0 1 36.4 9 Morgan Stanley 1,666.5 2 15.1 2 Citigroup 1,624.8 3 14.7 5 Barclays Capital 1,049.1 4 9.5 8 Deutsche Bank AG 748.9 5 6.8 6 Lehman Brothers 625.0 6 5.7 2 Merrill Lynch & Co Inc 512.6 7 4.6 4 Credit Suisse First Boston 413.3 8 3.7 2 Banc of America Securities LLC 286.6 9 2.6 4 UBS 46.3 10 0.4 1 Industry Total 11,051.6 - 100.0 23 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 21.4 2 Deutsche Bank AG 1,191.7 1 21.4 2 Lehman Brothers 725.8 3 13.0 1 JP Morgan 725.8 3 13.0 1 Barclays Capital 725.8 3 13.0 1 HSBC Holdings PLC 566.7 6 10.2 1 Citigroup 212.0 7 3.8 1 Industry Total 5,569.5 - 100.0 5 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 20,955.1 1 10.0 33 Morgan Stanley 19,280.0 2 9.2 23 Countrywide Securities Corp 18,744.7 3 8.9 22 Royal Bank of Scotland Group 18,616.8 4 8.9 29 Lehman Brothers 17,297.8 5 8.2 43 Credit Suisse First Boston 16,999.2 6 8.1 40 Deutsche Bank AG 16,768.8 7 8.0 32 Banc of America Securities LLC 11,975.0 8 5.7 23 Merrill Lynch & Co Inc 10,937.9 9 5.2 14 Citigroup 10,027.4 10 4.8 21 Industry Total 210,222.3 - 100.0 374 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 18.9 4 Morgan Stanley 2,757.6 2 16.6 3 Citigroup 2,230.0 3 13.4 4 Credit Suisse First Boston 2,196.2 4 13.2 3 Deutsche Bank AG 1,483.8 5 8.9 3 UBS 1,447.2 6 8.7 3 Lehman Brothers 1,012.4 7 6.1 1 JP Morgan 983.8 8 5.9 2 Goldman Sachs & Co 806.2 9 4.9 2 Merrill Lynch & Co Inc 550.3 10 3.3 1 Industry Total 16,601.7 - 100.0 13 Source: Thomson Financial

auto ABS 9% credit card ABS 3% global MBS 3% real estate ABS 30% student loan ABS 4% other 2% Sector Total 50%

The global expansion of securitization markets continues with the first-ever Dubai, United Arab Emirates-originated loan backed offering hitting U.S. investors' desks this month, as well as the recent pricing of a transaction backed by commercial property payments originated in Dubai. Last Wednesday saw the completion of a $200 million Gold Sukuk DMCC transaction, which will be followed by a $350 million deal from Emirates National Securitisation Corp., which is scheduled to price this month.

Credit card issuer The Metris Companies will give a presentation for the Turnaround Management Association, an organization that studies corporate turnarounds, representing Metris' successful climb back from the edge of the financial abyss.

Home equity deals dominated a sluggish U.S. primary market that priced $10.4 billion last week. Three credit card deals and one auto deal also found their way to the fore while other sectors, such as student loans, equipment and auto leases, and rate reduction bonds sat on the bench.