CDOs

The asset-backed commercial paper market saw an apparent spike in volume during the first two days of July. According to figures posted by the Federal Reserve, month-end outstandings in June came in at just below $720 billion, though the Fed reports outstanding ABCP at $734.7 billion for Wednesday, July 2, implying a near $15 billion increase in just two days. The market pushed up an additional $7.6 billion to end last Wednesday at $742.3 billion.

It was a rather slow, uninteresting week of trading in the U.S. ABS primary market, with a pair of auto deals highlighting the new issuance. Total volume came in just over $6.3 billion, with home equity issuance accounting for $2.1 billion of the week's supply. The largest asset class representation was in the student loan sector, which priced one, albeit large, transaction.

The summer lull descended upon the market as CDO issuance reached paltry levels last week. While arbitrage and structured product CDOs make up the bulk of the current pipeline, market talk focused on high yield loan-back vehicles and wider-than-expected spreads.

By Richard V. Hrvatin, Dr. Stefan Bund, John Schiavetta, and Kenneth Gill of Fitch Ratings

Year to date as of Jul 9 Term (days) 07/03 07/04 07/07 07/08 07/09 1-week

2003 2002 2001 ABS (Public and 144A) 280,252 232,555 192,967 ABS (Public and 144A excluding CDOs) 263,371 204,147 166,756 ABS (Public Only) 234,232 183,430 139,772 ABS (144A Only) 46,019 49,125 53,195 Non-Agency MBS 170,851 108,740 90,426 Agency MBS 323,911 258,157 133,102 CMBS 36,226 23,996 30,547 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 4,444.3 1 14.3 6 Deutsche Bank AG 3,770.1 2 12.2 7 Citigroup 3,705.3 3 12.0 5 BANK ONE Corp 3,347.8 4 10.8 6 Credit Suisse First Boston 3,129.1 5 10.1 7 Banc of America Securities LLC 2,447.8 6 7.9 5 Barclays Capital 2,400.8 7 7.8 5 Morgan Stanley 2,265.7 8 7.3 4 Merrill Lynch & Co Inc 1,635.4 9 5.3 3 Goldman Sachs & Co 1,289.4 10 4.2 3 Industry Total 30,992.1 - 100.0 40 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 Credit Suisse First Boston 2,978.7 1 17.7 9 Deutsche Bank AG 2,703.6 2 16.0 6 Wachovia Corp 1,959.4 3 11.6 6 Bear Stearns & Co Inc 1,673.2 4 9.9 6 Citigroup 1,547.6 5 9.2 4 Morgan Stanley 1,031.4 6 6.1 4 UBS 900.0 7 5.3 2 Banc of America Securities LLC 884.6 8 5.2 4 Goldman Sachs & Co 829.2 9 4.9 3 JP Morgan 697.6 10 4.1 2 Industry Total 16,880.7 - 100.0 52 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 10,421.7 1 26.1 16 BANK ONE Corp 8,026.8 2 20.1 14 JP Morgan 6,078.6 3 15.2 11 Barclays Capital 3,834.7 4 9.6 7 Morgan Stanley 3,579.5 5 9.0 4 Banc of America Securities LLC 2,537.3 6 6.4 8 Deutsche Bank AG 2,084.6 7 5.2 7 Credit Suisse First Boston 1,294.2 8 3.2 4 Lehman Brothers 823.1 9 2.1 3 Wachovia Corp 673.0 10 1.7 3 Industry Total 39,903.4 - 100.0 65 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 Deutsche Bank AG 1,375.0 1 39.7 5 JP Morgan 875.0 2 25.3 4 Citigroup 500.0 3* 14.4 1 BANK ONE Corp 500.0 3* 14.4 1 Banc of America Securities LLC 212.0 5 6.1 1 Industry Total 3,462.1 - 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 Lehman Brothers 21,883.0 1 14.2 54 Countrywide Securities Corp 14,477.3 2 9.4 24 Royal Bank of Scotland Group 13,292.6 3 8.6 30 Citigroup 12,967.4 4 8.4 33 Morgan Stanley 12,447.8 5 8.1 28 Banc of America Securities LLC 11,067.3 6 7.2 30 JP Morgan 10,978.0 7 7.1 16 Deutsche Bank AG 10,255.2 8 6.6 25 Credit Suisse First Boston 9,927.1 9 6.4 25 Bear Stearns & Co Inc 7,603.8 10 4.9 17 Industry Total 154,522.5 - 100.0 281 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 3,746.1 1 22.8 7 Deutsche Bank AG 2,740.7 2 16.7 5 Morgan Stanley 2,599.9 3 15.8 4 Merrill Lynch & Co Inc 2,238.3 4 13.6 4 Credit Suisse First Boston 1,877.2 5 11.4 3 Banc of America Securities LLC 1,186.3 6 7.2 3 JP Morgan 514.1 7 3.1 1 BANK ONE Corp 507.6 8* 3.1 1 Lehman Brothers 507.6 8* 3.1 1 UBS 503.0 10 3.1 2 Industry Total 16,420.8 - 100.0 15 Source: Thomson Financial

Year to date as of Jul 9 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 1,365 1,365 1,365 1,365 Asset-Back Certs Auto Loans/Recs 36,446 28,855 7,591 34,603 1,842 10,107 19,227 6,929 125 35 Cash Catastrophe Bond Commercial Loans 311 188 123 311 311 Corp Bond/Note 1,882 366 1,483 1,882 1,294 56 532 Corporate Loans 4,384 385 3,965 4,384 1,392 774 161 906 1,152 Credit Card Rec 39,903 10,338 29,566 39,547 356 9,087 3,909 25,258 750 900 Debentures 1,670 1,670 1,670 1,670 Equip Loans Equip. Leases 5,480 3,679 1,801 3,866 1,613 1,279 3,458 668 75 FHLMC 2,231 2,231 2,231 2,231 FNMA 4,756 2,757 1,999 4,756 3,390 1,002 221 144 Floorplan Recs 3,462 3,462 3,436 26 750 2,712 Franchisee Loans 228 228 228 109 Health Care Rec Insurance Recs 622 622 622 622 Junk Bonds 2,293 233 2,060 2,293 734 490 1,069 Legal Fees Loans 3,175 3,175 3,175 3,175 Mnfrd Housing Ct 714 593 121 575 139 103 186 11 359 Motorcycle Loans 975 975 975 975 Mutual Fund Fees 342 116 226 342 342 Non-Jumbo Mtg Ln 36,402 11,283 24,779 32,242 4,160 13,870 6,899 14,113 1,173 197 Non-Perf Loans Oil Contracts Preferred Sec 1,034 204 805 1,034 108 108 177 640 Prv Issued Sec 505 178 327 87 418 505 Rental Car Rec. 1,775 1,050 725 1,775 650 1,125 Retail Contracts Rev Cred/Home Eq 121,233 50,906 69,013 110,747 10,486 57,170 34,674 26,901 1,829 514 Sm Business Loan 645 645 645 391 254 Stranded Costs Struc Fin Credit 12,142 2,352 9,753 12,142 7,155 352 671 2,393 1,489 Student Loans 17,671 600 14,319 16,300 1,371 3,648 3,357 5,384 4,428 142 Swap Agreement Tax Liens Timeshare Loans 303 245 58 303 303 Tobacco Receives 154 154 154 154 Trade Recs 225 105 120 225 225 Truck Loans Leases 450 450 450 Note: Figures are preliminary and subject to change. Data includes U.S. deals and dollar Euro 144As.Source: Thomson Financial

Rev Cred/Home Eq 41% Credit Card Rec 14% Auto Loans/Recs 12% Non-Jumbo Mtg Ln 12% Student Loans 6% Other 15%

NEW YORK - With the deadline for conduit restructuring having come and gone, some of the banks still on the restructuring pike - and apparently there are many - may rather be working to deconsolidate the assets they'll take on for the reporting period ended June 30, as well as to avoid consolidating new assets originated between now and Sept. 30.

Borrowing from the credit card, mortgage and CDO sectors, Cendant Corp. has unveiled the latest structural innovation to the ABS market. Named Terrapin Funding, structural advisor and underwriter Lehman Brothers has developed a transaction that allows Cendant to essentially delink senior classes of fleet lease securitizations and pre-fund subordination for future offerings. The trust is named after the Hunt Valley, Maryland headquarters of auto fleet leasing unit PHH Vehicle Management.

Operations and issuance for mutual fund industry risk manager Constellation Financial Management are not expected to dramatically change following the announcement that it agreed to be acquired by French investment bank Societe Generale for an undisclosed purchase price. Managing Director Joseph D'Anna is expected to maintain his role and upper management also is expected to be retained.

A slew of multisector CDO repacks has hit the new issue market over the last two weeks. A closer look reveals the collateral has overwhelmingly been real estate-related, no surprise given the pace at which the home equity market has been churning.

A holiday-shortened trading week, coupled with the typical slow start to a new quarter, left the ABS primary market nearly devoid of activity last week. Just $3.15 billion priced, including an EETC, while an additional $3.8 billion was readied for when the market returns from the Independence Day holiday.

In last week's CDO Insight, UBS Warburg researcher Douglas Lucas highlighted the "CDO strangles" trade, where an investor takes a long position in a CDO sub tranche and shorts the seniors.