Securitization

For some time, there had been talk that when the easy money of the last several years dried up, Brazil's leading banks would return to structured finance. The reasoning was that harsher terms for unsecured funding would enhance the appeal of collateralizing diversified payment rights (DPRs).

At long last, after a seven-month absence from the securitization market, the Nelnet Student Loan Trust (NSLT) came to market in early March. The $1 billion transaction, managed by Barclays Capital, Deutsche Bank Securities and JPMorgan Securities, bore out some of the substantial changes underway in the business of financing student loans in the capital markets.

False employment history and claimed income accounted for the most common types of fraud in 2007, according to the Mortgage Asset Research Institute's (MARI) Tenth Periodic Mortgage Fraud Case Report.

The monoline industry does not have much to celebrate these days. But a not-so-little European whole business deal wrapped by MBIA that closed last week could provide a small specter of hope for bond insurers.

The U.K. government is planning on introducing a system where it endorses the best-quality U.K. covered bond and RMBS pools. This move is aimed at increasing transparency and improving investor confidence, thereby boosting lender liquidity.

Mortgages surged midweek on an announcement from the Federal Reserve of a new program to help ease the liquidity crisis. Specifically, the Fed announced an expansion of its securities lending program - a new term securities lending facility (TSLF). Under the program, the Fed will lend to primary dealers up to $200 billion of Treasury securities secured for 28 days instead of overnight, as they were in the current program (see story p. 15).

Ambac announced that it has completed its $1.5 billion equity offering and is working to restore market confidence, said John Uhlein, executive vice president at Ambac Financial Group.

UBS urged financial market regulators to "take an active role," in rating agency selection as part of an effort to save these firms, in a research report last Tuesday.

Last week Fitch Ratings said that Eurosail 2006-3 NC plc had drawn on its reserve fund as of the March 2008 payment date. The draw is one of a number seen in U.K. nonconforming transactions in recent weeks.

An ABS investor called up a dealer and says: "I want $2.25 billion in thirteen-month credit card ABS in two different names. Can you arrange that, please?"

The Information Management Network's 12th annual U.S. CDOs, Credit Derivatives and Structured Credit Products conference in New York opened last Tuesday with panelists speaking bluntly about current CDO market conditions. They also made forecasts about future deal structures.

The role of the CDO manager has been called into question lately as market participants have suggested that investors are bound to favor static deals.

The once mighty real estate sector in Mexico isn't looking so unsinkable anymore. Originators are sticking to issuance plans, but spreads are blowing out. Real estate receivables aren't exhibiting the credit problems pervasive in U.S. subprime, but that apparently hasn't been much comfort to local investors.

The decision last week by the Federal Reserve to flow up to $200 billion into the credit market has done little to embolden market participants, many of whom believe the Fed's action did not go far enough to help the credit crunch.

Moody's Investors Service cut Washington Mutual's credit rating today and said that the mortgage firm will need at least an additional $4 billion more than it expected to compensate for the bad mortgages it has in its portfolio in 2008. The rating agency stated that its action shows a rapid deterioration of the housing sector in the first few months of this year, which was the same reason Standard & Poor's used to cut WaMu's ratings a week ago. WaMu has projected that it will write-down up to $8 billion this year on account of borrowers who can't make their mortgage payments. Resulting fiscal-year losses could remove the cash cushion that keeps the mortgage company in compliance with regulations, Moody's stated in its release. Moody's brought down WaMu's senior unsecured rating to 'Baa3' from 'Baa2.' It also cut Washington Mutual Bank's long-term deposit rating to 'Baa2 from 'Baa1.'

Ambac has completed its $1.5 billion equity offering and is working to restore market confidence, said John Uhlein, executive vice president at Ambac Financial Group. Uhlein, was among the panelists from the bond insurance industry who spoke at the American Securitization Forum's sunset seminar on financial guarantors yesterday. In what seemed to be a remarkably upbeat discussion, Uhlein noted that many of Ambac's previous stock holders, 20 investors owned approximately 80% of Ambac's stock prior to the offering, invested in the offering and were supportive of the capitalization plan. Cerberus Capital Management has also been publicly identified as an investor in the offering. While Uhlein acknowledged that a prior deal to split the company had been discussed, ultimately Ambac decided that it would remain a single entity, primarily out of fear that a separated structured finance unit might not be able to generate enough capital to sustain a triple-A rating. "If you want to be a triple-A company, you have got to make that decision," Uhlein said. He noted that a 'AA'-rated monoline is much more niche.

Fitch Ratings President and CEO Stephen Joynt today issued the following statement. Joynt's remarks were a response to comments made today by U.S. Secretary of the Treasury Henry Paulson in a speech at the National Press Club in Washington, DC. "We commend the President's Working Group on their thoughtful observations on the market events of the past several months," Joynt said. "We will continue, on our own and with our industry, to work with regulators, investors and other market participants to ensure that our ratings are the most transparent, useful and accurate that they can be."

Fitch Ratings has placed the Washington Mutual covered bond program series 1, 2 and 3, rated 'AAA' on Rating Watch Negative. This move came after the lowering of Washington Mutual Bank's long-term Issuer Default Rating (IDR) to 'BBB' from 'A-' and affirmation of its short-term IDR at 'F2'. The outlook for WaMu's long-term IDR remains negative. Under the rating agency's covered bond methodology, a downgrade of the long-term IDR of the financial institution acting as debtor of recourse could possibly lead to a downgrade of the covered bond rating depending on the assigned Discontinuity Factor (D-Factor). The D-Factor measures the likelihood of an interruption of payments resulting from covered bond holders caused by the transition from the debtor of recourse to the cover pool as a source of payment on the covered bonds. Fitch is currently assigning a D-Factor to WaMu's program. The rating agency will consider the validity of the segregation mechanism by looking at the assets pledged over other factors. These other factors include the mortgage bond indenture trustee, the robustness of WMB's IT systems to manage the cover pool, the liquidity gaps between the cover pool and the covered bonds in a WMB insolvency scenario, notably considering the effect of a potential 90-day stay period imposed pursuant to Federal Deposit Insurance Act; as well as the lack of a dedicated covered bonds oversight in the U.S, the rating agency said.

Fitch Ratings President and CEO Stephen Joynt sent a letter to MBIA on Monday responding to the bond insurer's letter dated March 7 asking that the rating agency withdraw the firm's IFS ratings. In the letter, Joynt said that Fitch is sympathetic to the "financial and operational stress" that MBIA is going through and is willing to continue its ratings without charge to the bond insurer. Joynt also asked for clarification of MBIA's intentions in terms of cooperating with Fitch's rating process. MBIA requested Fitch to return or destroy key portfolio information and discontinue all use of the said information in proceeding with its rating analysis. Joynt questioned MBIA's intentions that were stated in the bond insurers' letter to investors dated March 9. "It would appear that rather than 'work with Fitch' your intention could be to emasculate our opinion by withholding information and subsequently discredit our opinion as being uninformed," Joynt said. Joint questioned whether it is the Fitch capital model, rating process or fees that MBIA objects to or is that MBIA is "aware we are continuing our analytical review and my conclude that , in our view, MBIA's insurer financial strength is no longer 'AAA.'"