CDOs

After setting a vigorous pace to close out the second quarter, the U.S. ABS primary market slowed considerably last week, pricing just under $5.3 billion. Slowed by issuers' desire to complete quarter-end funding before the Fed's 25 basis point rate hike last week, issuance slowed to $5 billion total volume, of which real estate ABS accounted for about $4.2 billion. The Independence Day holiday likely did not help the cause.

Northwest Farm Credit Services recently closed a $57 million synthetic CLO, referenced to U.S. government agency subsidized loan payments to farming operations in the Pacific Northwest. The structure of the deal offered investors a wide array of credit risk, from super-senior down through speculative-grade classes, which priced with a four-digit spread to Libor.

Several aircraft deals took further punishment last week, with Moody's Investors Services doling out downgrades on 23 classes from four separate trusts. The deals were placed on review several months before United Airlines made headlines with its failure to secure federal loan guarantees last week. However, the airline's misfortune does not bode well for aircraft ABS in general.

Investors in the European marketplace will be able to reference an equity index through a newly unveiled index-linked synthetic CDO structure, which Standard & Poor's has branded a first in the industry.

The personnel shakeup at Moody's Investors Service is seemingly over, as last week the rating agency promoted Michael Kanef to new group managing director of U.S. asset finance ratings. Kanef takes over for Andy Silver, who announced his resignation to accept a lecturing position at Rutgers University. Silver's departure, effective in mid-July, marks the second high-ranking managing director to leave the rating agency in June, following Ed Bankole's resignation the previous month.

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 5,289.7 1 19.7 6 Deutsche Bank AG 3,616.4 2 13.5 5 Morgan Stanley 3,275.2 3 12.2 6 JP Morgan 3,207.9 4 12.0 6 Citigroup 2,986.6 5 11.2 4 Credit Suisse First Boston 2,745.6 6 10.3 4 UBS 2,420.0 7 9.0 5 Banc of America Securities LLC 1,781.4 8 6.7 2 Lehman Brothers 1,012.6 9 3.8 2 RBC Capital Markets 462.0 10 1.7 1 Industry Total 26,797.3 - 100.0 23 Source: Thomson Financial

Year to date as of Jun 30 Coupon Type Market Average Life Buckets Asset Class Volume Pub/144A Fixed Rate Floating Rate Public 144A 0.0 to 0.9 1.0 to 2.9 3.0 to 5.9 6.0 to 7.9 8.0 to 11.0 Aircraft Leases 126 126 126 126 Auto Loans/Recs 34,972 31,354 3,618 30,576 4,397 11,996 17,602 5,375 Comm. Mtg 1,258 375 883 1,258 229 593 410 Commercial Loans Corp Bond/Note 3,116 966 2,150 3,116 1,839 746 45 485 Corporate Loans 4,054 194 3,860 4,054 1,987 395 370 830 471 Credit Card Rec 26,157 10,099 16,058 22,294 3,864 18,819 650 4,739 700 1,249 Debentures 1,588 1,588 1,588 1,588 Equip Loans Equip. Leases 4,414 4,164 250 4,164 250 1,988 1,387 529 221 289 Floorplan Recs 4,186 4,186 4,062 124 3,836 350 Franchisee Loans 194 194 194 Home Impr Loans Installment Recs 1,797 1,797 1,797 1,797 Junk Bonds Leveraged Loans 1,174 64 1,110 1,174 38 10 284 842 Mixed Collateral 1,381 7 1,374 1,381 1,000 306 22 53 Mnfrd Housing Ct 200 200 200 200 Motorcycle Loans 2,740 2,740 2,740 313 1,923 504 Mutual Fund Fees 331 331 331 331 Non-Jumbo Mtg Ln 47,204 21,294 23,582 44,944 2,261 28,083 9,686 8,920 218 284 Oil Receivables Preferred Sec 2,382 1,053 1,330 2,382 2,038 158 186 Prv Issued Sec 865 391 380 865 865 Rental Car Rec. 2,400 1,300 1,100 2,400 1,300 1,100 Rev Cred/Home Eq 168,626 94,788 64,834 147,024 21,602 106,430 41,144 18,959 1,467 553 Sm Business Loan 828 828 828 828 Struc Fin Credit 11,165 4,697 6,468 11,165 3,458 1,496 4,730 1,392 Student Loans 23,797 454 21,858 19,344 4,453 11,151 3,239 3,844 3,663 1,808 Tax Liens Ticket Rec Timeshare Loans 621 386 236 621 471 150 Tobacco Receives Trade Recs Unspecified/NA Note: Figures are preliminary and subject to change. Data includes U.S. deals and dollar Euro 144As.Source: Thomson Financial

Rev Cred/Home Eq 49% Non-Jumbo Mtg Ln 14% Auto Loans/Recs 10% Credit Card Rec 8% Student Loans 7% Other 13%

Year to date as of 07/01 Term (days) 06/25 06/28 06/29 06/30 07/01 1-week

2004 2003 2002 ABS (Public and 144A) 346,966 276,124 225,491 ABS (Public and 144A excluding CDOs) 318,814 255,960 200,163 ABS (Public Only) 276,578 225,385 179,895 ABS (144A Only) 70,388 50,739 45,596 Non-Agency MBS 139,697 154,346 94,427 Agency MBS 166,272 361,014 216,039 CMBS 35,263 34,479 21,241 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 7,192.8 1 19.7 10 JP Morgan 6,106.3 2 16.8 10 Deutsche Bank AG 5,344.5 3 14.7 9 Wachovia Corp 3,158.9 4 8.7 4 Credit Suisse First Boston 3,120.2 5 8.6 7 Banc of America Securities LLC 3,105.2 6 8.5 6 Barclays Capital 2,355.2 7 6.5 6 Merrill Lynch & Co Inc 2,002.4 8 5.5 3 Goldman Sachs & Co 1,256.2 9 3.5 1 Lehman Brothers 870.7 10 2.4 2 Industry Total 36,454.5 - 100.0 42 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 5,504.0 1 17.3 9 UBS 3,917.0 2 12.3 6 Wachovia Corp 3,117.4 3 9.8 13 Deutsche Bank AG 3,054.2 4 9.6 8 Citigroup 2,590.5 5 8.1 11 Credit Suisse First Boston 1,772.4 6 5.6 4 Bear Stearns & Co Inc 1,549.8 7 4.9 5 Lehman Brothers 1,509.0 8 4.7 7 Morgan Stanley 1,445.8 9 4.5 5 Banc of America Securities LLC 1,391.9 10 4.4 9 Industry Total 31,902.9 - 100.0 88 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 10,541.3 1 38.9 16 Citigroup 4,698.4 2 17.4 10 Lehman Brothers 4,119.2 3 15.2 8 Barclays Capital 2,349.4 4 8.7 6 Deutsche Bank AG 1,324.7 5 4.9 6 Credit Suisse First Boston 1,194.3 6 4.4 4 Banc of America Securities LLC 1,193.0 7 4.4 5 Merrill Lynch & Co Inc 752.2 8 2.8 2 Goldman Sachs & Co 425.0 9 1.6 2 Morgan Stanley 375.0 10 1.4 1 Industry Total 27,072.4 - 100.0 44 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 1,708.0 1 34.0 3 Credit Suisse First Boston 1,058.0 2 21.1 3 HSBC Holdings PLC 708.0 3 14.1 2 Banc of America Securities LLC 632.0 4 12.6 2 Wachovia Corp 420.0 5 8.4 1 Morgan Stanley 250.0 6* 5.0 1 ABN AMRO 250.0 6* 5.0 1 Industry Total 5,026.0 - 100.0 7 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 37,313.8 1 15.3 37 Royal Bank of Scotland Group 27,901.4 2 11.4 52 Lehman Brothers 22,922.0 3 9.4 52 Credit Suisse First Boston 18,429.4 4 7.6 38 Bear Stearns & Co Inc 18,014.3 5 7.4 39 Morgan Stanley 18,011.3 6 7.4 40 Citigroup 15,062.4 7 6.2 45 Deutsche Bank AG 14,827.9 8 6.1 42 Merrill Lynch & Co Inc 13,430.7 9 5.5 27 Banc of America Securities LLC 13,270.3 10 5.4 40 Industry Total 244,227.9 - 100.0 435 Source: Thomson Financial

By in large, savvy market players seem to favor the CDO of home equity bonds over the underlying bonds themselves, given the added structure, mix of issuers and regions, as well as the pick up in absolute yield. While three-year triple-A home equity-focused CDOs are pricing within a few points of comparable HELs -both currently in the mid 30s - the CDOs are indexed off the three-month Libor compared to the one-month Libor, which picks up about 25 basis points on today's curve.

Issuance of home equity line of credit-backed ABS is on a torrid pace halfway through the year - having topped the $10 billion mark last week - and spreads are starting to show the effects of the supply. After having pushed the 20 basis point threshold over Libor, spreads have moved out on recently priced transactions to the mid-20 basis point area over Libor.

With the closing of the JPMorgan Chase/Bank One Corp. merger expected this week, the market is bidding a fond farewell to the final remaining Midwest investment bank's presence. Lead mandates have trickled down - Banc One Capital Markets and JPMorgan Securities jointly led last week's Prestige Auto Corp. series 2004-1 deal, perhaps the final ABS with the BOCM stamp. The bank has liquidated its trading inventory and research dried up several weeks ago. It's understood that many BOCM ABS professionals were unwilling to move to JPMorgan's New York-based offices and are now fielding new job offers.

As the first half of the year rapidly approaches, issuers rushed to the U.S. ABS primary market last week, pricing $17.5 billion in new issue supply. Not surprisingly, with the Fed expected to begin its tightening cycle this week, real estate ABS had another busy week with over $13 billion circulating at week's end.

GMAC-RFC, the most prolific ABS issuer over the past year-and-a-half recently introduced a new securitization product backed by what could become a new sub-sector in the mortgage related ABS market. Residential Asset Acquisition Corp. Trust (RAAC), issued off the RAMP shelf, is backed by heavily seasoned collateral acquired by RFC's Principal Investment Activities group acquired from banks selling assets and prime scratch and dent loans. Many of the loans were repurchased by originators following deal clean-up calls, as factors shrank during the three-year-long refi wave.