CDOs

Primary ABS issuance picked up last week, with over $12.6 billion marketed as many in the market gathered in Barcelona for the global ABS conference being held there (see story p5). A pair of captive auto deals totaling $4.2 billion overshadowed the home equity sector, which saw continued supply from dealer shelves, as well as three offerings from regular issuers in the sector.

Chase Manhattan Bank N.A. announced last week that it had received majority bondholder approval to amend its credit card master trust. This allows the sharing of excess spread, therefore limiting the early payout risk for three high-coupon, fixed-rate series. While raising questions as to its overall effectiveness (see ASR 5/26/03), the move is viewed as an example of an issuer protecting bondholder interests, without raising regulatory suspicions of implicit recourse and whether or not the assets truly are off-balance sheet.

While leveraged loans have proven more stable and less risky CDO collateral than high yield bonds, some might be questioning their presence in structured vehicles, as ultimate recovery rates on bank loans are declining.

With correlation being the risk of the moment in credit derivative markets, UBS Warburg CDO researcher Douglas Lucas takes the argument one step further and theorizes that the result of the heightened correlation risk will be an increase in a relatively unknown derivative product.

The American Securitization Forum is hosting a discussion this week on the role of the trustee in ABS transactions. The meeting is scheduled for Wednesday evening at its New York headquarters. The next in the Sunset Seminar series of discussions will allow representatives from rating agencies Moody's Investors Service and Fitch Ratings to defend their respective opinions on trustee activity, as well as giving trustees a first-time forum to defend their actions, or lack thereof, in the eyes of the market.

Year to date as of Jun 4 Term (days) 05/22 05/23 05/26 05/27 05/28 1-week

2003 2002 2001 ABS (Public and 144A) 238,790 185,372 164,121 ABS (Public and 144A excluding CDOs) 227,240 164,496 142,398 ABS (Public Only) 201,992 147,874 121,689 ABS (144A Only) 36,798 37,498 42,432 Non-Agency MBS 129,030 86,445 70,917 Agency MBS 266,013 196,279 96,313 CMBS 27,182 18,264 25,792 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 1,959.7 1 17.4 6 Deutsche Bank AG 1,644.5 2 14.6 4 Bear Stearns & Co Inc 1,270.7 3 11.3 5 Wachovia Corp 1,050.0 4 9.3 3 Citigroup 1,047.6 5 9.3 3 Goldman Sachs & Co 829.2 6 7.4 3 Morgan Stanley 628.4 7 5.6 3 Banc of America Securities LLC 597.8 8 5.3 2 Westdeutsche Landesbank Giro 545.0 9 4.8 1 Lehman Brothers 368.4 10 3.3 3 Industry Total 11,250.9 - 100.0 37 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 8,843.2 1 27.8 13 BANK ONE Corp 5,351.9 2 16.8 9 JP Morgan 4,479.3 3 14.1 9 Morgan Stanley 3,579.5 4 11.2 4 Barclays Capital 2,834.7 5 8.9 6 Banc of America Securities LLC 2,212.3 6 6.9 7 Deutsche Bank AG 1,707.6 7 5.4 5 Credit Suisse First Boston 969.3 8 3.0 3 Lehman Brothers 748.8 9 2.4 3 Wachovia Corp 673.0 10 2.1 3 Industry Total 31,862.0 - 100.0 51 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 42.3 5 JP Morgan 875.0 2 26.9 4 Citigroup 500.0 3* 15.4 1 BANK ONE Corp 500.0 3* 15.4 1 Industry Total 3,250.1 - 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 Lehman Brothers 20,711.3 1 16.3 46 Countrywide Securities Corp 11,796.6 2 9.3 18 Citigroup 10,636.9 3 8.4 29 JP Morgan 10,520.0 4 8.3 14 Royal Bank of Scotland Group 8,757.4 5 6.9 22 Deutsche Bank AG 8,629.1 6 6.8 19 Credit Suisse First Boston 8,320.7 7 6.6 21 Banc of America Securities LLC 8,261.7 8 6.5 23 Morgan Stanley 7,928.2 9 6.3 20 UBS Warburg 7,091.1 10 5.6 13 Industry Total 126,904.1 - 100.0 222 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 3,149.7 1 21.2 5 Morgan Stanley 2,599.9 2 17.5 4 Deutsche Bank AG 2,293.1 3 15.5 4 Credit Suisse First Boston 1,877.2 4 12.7 3 Merrill Lynch & Co Inc 1,790.7 5 12.1 3 Banc of America Securities LLC 1,136.7 6 7.7 2 JP Morgan 514.1 7 3.5 1 BANK ONE Corp 507.6 8* 3.4 1 Lehman Brothers 507.6 8* 3.4 1 UBS Warburg 453.4 10 3.1 1 Industry Total 14,830.0 - 100.0 13 Source: Thomson Financial

Year to date as of Jun 4 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 30,062 23,204 6,859 29,272 791 6,418 17,466 6,121 35 Cash Catastrophe Bond Commercial Loans 921 194 727 921 822 99 Corp Bond/Note 1,249 321 895 1,249 661 56 532 Corporate Loans 2,044 233 1,787 2,044 546 450 1,049 Credit Card Rec 30,939 6,987 23,953 30,583 356 7,737 3,909 18,044 750 500 Debentures 1,485 1,485 1,485 1,485 Equip Loans Equip. Leases 3,951 2,641 1,310 2,995 956 1,208 2,038 637 68 FHLMC 2,225 2,225 2,225 2,225 FNMA 3,480 1,480 1,999 3,480 2,113 1,002 221 144 Floorplan Recs 3,250 3,250 3,224 26 750 2,500 Franchisee Loans 228 228 228 109 Health Care Rec Insurance Recs 1,763 250 1,513 1,141 622 1,141 622 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 260 140 121 260 51 146 3 45 Motorcycle Loans 975 975 975 975 Mutual Fund Fees 175 75 100 175 175 Non-Jumbo Mtg Ln 29,888 7,543 22,029 26,186 3,703 11,156 6,899 10,361 1,149 173 Non-Perf Loans Oil Contracts Preferred Sec 1,034 204 805 1,034 108 108 177 640 Prv Issued Sec 479 178 301 87 392 479 Rental Car Rec. 1,775 1,050 725 1,775 650 1,125 Retail Contracts Rev Cred/Home Eq 89,331 36,688 51,596 81,687 7,644 38,879 26,645 21,668 1,604 392 Sm Business Loan 254 254 254 254 Stranded Costs Struc Fin Credit 6,083 884 5,163 6,083 2,566 279 2,294 862 Student Loans 14,035 600 11,149 12,912 1,123 2,152 2,595 4,937 3,572 68 Swap Agreement Tax Liens Timeshare Loans 303 245 58 303 303 Tobacco Receives 154 154 154 154 Trade Recs 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 39% Credit Card Rec 15% Non-Jumbo Mtg Ln 13% Auto Loans/Recs 11% Student Loans 7% Other 15%

With spreads for top-tier ABS issuers offering little value, for the first time in a while the Street is noticeably recommending that investors look to headline names for yield and potential spread tightening. In particular, AmeriCredit Corp., The Metris Companies and Capital One Financial have all tightened in the past three months and given the current economic fundamentals, "now is the time to switch the mindset from defensive to aggressive in order to take advantage of opportunity when presented," note researchers at JPMorgan Securities.

Bank of America last week launched Yorktown Funding, a multi-seller ABCP conduit structured to address consolidation criteria set by the Financial Accounting Standards Board in its Financial Interpretation No. 46 (FIN 46). This is believed to be the first conduit structured specifically with the new accounting rules in mind.

Intellectual property ABS, though often talked up, has never really lived up to the hype, especially as investors became hesitant to venture into the esoteric in recent years. And now the infamous "Bowie Bonds" that got the ball rolling in 1997 are under threat of a downgrade.

New-issue supply slowed in last week's holiday-shortened session that preceded the global ABS conference held this week in Barcelona. U.S. primary market priced just $4.8 billion, as of press time, with an additional $4.9 billion of supply being announced late in the week.

New issues in the domestic CDO marketplace have declined sharply in recent weeks, prompting speculation that more than just downgrades are clouding the sector's vigor and clogging up the pipeline.

Year to date as of May 28 Term (days) 05/22 05/23 05/26 05/27 05/28 1-week