Securitization

Mortgage market participants have been keeping a close eye on the CMBS market, which has seen spreads gap out drastically in recent months.

Moody's Investors Service downgraded a number of regional and community-based banks on concerns about their exposures to commercial real estate. The rating agency also looked at the potential losses in the affected banks' CRE portfolios.

McDonnell Investment Management has hired Michael Herzig as the managing director of McDonnell's newly established New York office. Herzig will head up the sales and client service effort for McDonnell's Alternative Credit Strategies Business Unit and will also help direct the product development and strategy committee for the firm. Herzig will serve on the management committee of McDonnell, reporting directly to Edward Treichel, McDonnell's president and CEO. Before McDonnell, Herzig had a nine-year stint at Deutsche Bank as a managing director. He was most recently a co-head of the U.S. CDO business with direct responsibility for CLO and credit opportunity fund origination and distribution.

The potential takeover bid for the U.K. outsourcing group Mapeley by U.S. hedge fund Fortress, its majority shareholder, will have no impact on CMBS that are backed by borrowers with Mapeley as their sponsor, Fitch Ratings said last week. Fitch said that the takeover approach coincides with the property company's need to refinance about £260 million ($515.5 million)of its debt before the end of April and the recent bid by Fortress was worth roughly £250 million. "In most cases, a sponsor of a loan must approach the relevant facility agent if it becomes subject to a change of control," Fitch analysts said. "Such a loan, including accrued interest and any amounts payable under the loan documents, might become immediately due and payable, either on demand by the agent or automatically." The relevant transactions are: DECO 6 - UK Large Loans 2 plc, DECO 8 Series 2006-UK Conduit 2 plc, DECO 11 Series 2006-UK Conduit 3 plc, European Loan Conduit No. 22 and Taurus CMBS (UK) 2006-2 plc. Mapeley focuses on the acquisition, ownership and management of a diverse portfolio of commercial properties, primarily let to government and strong credit quality tenants. The firm currently owns and actively manages a property portfolio of over £2.2 billion. -- NC

Alexander Rekeda joined Guggenheim Capital Markets as managing director and head of CDOs, effective today. Rekeda was previously head of structured credit, Americas at Mizuho Securities which he joined in November 2006. Mizuho dismissed its entire CDO-underwriting group in mid-December 2007, including Rekeda as well as 13 others, who all left Calyon for positions at Mizuho only one year prior. Rekeda had built up the cash CDO business at Calyon, where he had had been since July 2004.

This morning DBRS announced that it is expanding its U.S. structured finance market service. "In a continuing effort to provide value to the market, DBRS has announced the expansion of its U.S. structured finance market services in providing credit assessments," the rating agency said in a statement. "These assessments, which cover a variety of asset types, better allow institutions to value market risks in their portfolios." The release also said that institutions are encouraged to contact the rating agency for more granular analysis on their portfolios. It added that in "such difficult times, leadership, stability and credibility are necessities for the credit markets."

Dechert has laid off 13 associates in its finance and real estate group. The associates were offered three options: to accept the severance package, stay 60 days in another group and then take the severance, or to stay in the new position, although there is no guaranty on the length of stay in that position. Under the third option, some of the associates could end up permanent, but if they stay longer than 60 days, the current severance package does not apply. In a report from lawyer.com, a statement from Dechert Chairman Barton J. Winokur was published. "Due to the major shift in market conditions affecting client demands in our finance and real estate practice area, we currently do not have sufficient work for all the associates in FRE," Winokur said in the statement. "As a consequence, we have told 13 associates in the U.S. FRE group that we see no demand for them in that group in the foreseeable future. However, due to increased and substantial demand in other practice areas, we will be offering those lawyers the opportunity to work in those other groups."

WL Ross & Co. has agreed to inject up to $1 billion of capital into Bermuda-based Assured Guaranty Ltd., making a bet that the distressed investment firm can help right the ship of the struggling monolines industry. Through the deal, WL Ross agreed to purchase $250 million common shares of Assured and provided a commitment to acquire up to $750 million of additional common shares at the option of the company. The initial investment is subject to regulatory approvals, while the follow-up purchases would require shareholder approval. The news follows rumors back in January that WL Ross was in talks to acquire Ambac. However, in an interview on financial news channel CNBC Friday morning, Wilbur Ross cited Assured's relative health compared to its competitors, such as Ambac, MBIA, FGIC and other bond insurers. "The others need capital to preserve their triple-A status. Assured is ranked as a strong, stable triple-A even without our capital," Ross said in the CNBC interview. "This is opportunity capital rather than damage-curing capital." However, Ross called the Assured investment "a first point of entry" into the sector, implying that the company could be used to acquire other troubled guarantors or even invest through offering reinsurance to the companies. Ross added that he and Assured management "are still in discussions" with others in the industry. In a statement, Assured's CEO Dominic Frederico seemed to back this sentiment, saying in the announcement, "This flexible capital source will allow us to continue to capitalize on the significant growth opportunities we see and will support our further expansion in both the direct and reinsurance markets." The additional $750 million commitment from WL Ross will be available for one year from the date of the closing of the $250 million investment. The price for subsequent investments will be 97% of the volume weighted average price of the company's common shares for the 15 trading days prior to notice of any subsequent investment. There is a MAC clause, however, that requires Assured to maintain its triple-A rating and overall credit quality. Merrill Lynch served as adviser on the deal.

Standard Chartered announced it has received all the required approvals that would lead to the completion of its American Express Bank acquistion from the American Express Co. The total cash amount for the acquisition is $823 million. According to a release from StanChart, the purchase will add 19 markets to the Standard Chartered business and will fast track the growth aspirations of The Standard Chartered Private Bank.

After entering the U.S. market as an asset manager nearly 10 years ago, Robeco Investment Management (RIM) is exiting the U.S. fixed income business, citing insufficient scale to provide a platform for growth in that segment of the asset management business. Morgan Stanley Investment Management will take over the $4.8 billion in taxable U.S. fixed income assets currently managed by Robeco Weiss, Peck and Greer. The transaction is expected to close in May, according to a statement from RIM. Robeco also plans to concentrate its fixed-income capabilities in Europe, where it manages a global fixed-income portfolio of more than $60 million. Exiting the U.S. market is the latest tactic in a broader realignment strategy for the company. RIM is in the process of finalizing its exit from the U.S. municipal fixed income business, and it has rolled out a plan to reward key investment professionals with ownership interests in the company.

Fitch Ratings looked at the potential impacts that a monoline split could have on the protection bought by banks from the financial guarantors, including on structured finance CDOs. The rating agency also examined the effects on the financial guarantors themselves. "The current situation is highly fluid," said Jim Batterman, a managing director at Fitch. What the market is concerned about is that a negative reassessment of financial guarantor counterparty risk might effectively result in a significant reversal of mark-to-market gains for the institutions, such as banks, that bought protection from the financial guarantors, Batterman added. Further, while some of these same protection buyers might have also hedged their counterparty exposure to the financial guarantors by purchasing protection on the financial guarantor (or its holding company) itself, Fitch said people should also consider the nuances of ISDA language, particularly in terms of settlement and succession, should these monolines be split apart.

Thornburg Mortgage said today that it has received more than $300 million in margin calls on a portfolio of securities backed by Alt-A loans. According to published reports, shares of Thornburg dipped $3.09, or 26.8%, to $8.45 in premarket trading today. Shares have traded between $7.49 and $28.40 over the past year. The mortgage company stated in a regulatory filing with the Securities and Exchange Commission that it is facing margin calls as result of the plummeting of the value of its Alt-A RMBS between 10% and 15% since the end of last month. As of Feb. 15, the mortgage originator said it that it had $2.9 billion of exposure to these troubled mortgages.

American International Group Issuer Default Rating (IDR) as well as all holding company ratings and subsidiary debt ratings including International Lease Finance and American General Finance are still on Rating Watch Negative by Fitch Ratings. The rating agency said this after AIG announced its 4Q07 financial results. According to the release,the rating agency first placed AIG and its subsidiary debt ratings on Rating Watch Negative on Feb. 11 following the firm's acknowledgement in an 8-K filing that as of last Dec. 31, its independent auditor believed that the insurance firm had a material weakness in internal controls related to the valuation of AIG Financial Products Corp.'s super senior credit derivative portfolio. Obligations of AIG FP are guaranteed by AIG. AIG's 4Q'07 results, announced today, included a significant 4Q FAS 133 unrealized market valuation loss on the credit derivative portfolio compared to previous periods. The losses are concentrated in CDOs backed by structured finance (SF CDOs) collateral, mainly subprime U.S. RMBS. AIG recognized $10.9 billion in FAS 133 unrealized market valuation losses from this portfolio in the fourth quarter versus just $352 million in losses in the third quarter of 2007.

New home sales fell by roughly 3% in January to 588,000, which is in line with RBS Greenwich Capital analysts 585,000 projection. Analysts noted that revisions to prior months were marginal. Sales dropped in every region except for the West, where the numbers rebounded by roughly 2%, after a 9% dip in December. After November's 13% dive in new home sales, which might have been overstated by a steep tightening in mortgage credit, the drops in December and January have been less, RBS said. There has recently been some evidence -- such as the uptick in the February National Association of Home Builders buyer traffic gauge as well as a record-high number of people in the February preliminary University of Michigan data stating that home prices were attractive -- to imply that recent price dips have sparked some interest with potential homebuyers. While it is too early to call a bottom considering the current tightness in mortgage credit, RBS analysts still believe that home sales could stabilize by the spring or summer. The number of new homes for sale dropped by 11,000 in January to 482,000 and has dipped by 87,000 units since peaking at 570,000 in August 2006. But, RBS analysts pointed out that this decline is indicative of a significant decrease in the number of homes for sale under construction. The number of completed homes for sale has risen by 45,000 from August 2006 and stood at a near-record 195,000 last month. This is why even though there are currently less homes in the pipeline, the stock of completed new homes for sale is still high, analysts said. Builders will likely hold back in terms of construction activity through most of this year, but the focus would likely stay on sales since only a flattening out of new home sales will allow builders to work off the overhang of new home inventory, RBS said the report released today.

Fitch Ratings downgraded four classes of notes issued by Coltrane CLO. All classes are on rating watch negative by the rating agency. Fitch lowered the transaction's €26,000,000 class B notes to 'CC' from 'CCC', €45,000,000 class C notes to 'CC' from 'CCC', €1,750,000 class D-1 notes to 'CC' from 'CCC' and €2,000,000 class D-2 notes to 'CC' from 'CCC'. On Feb. 25, the rating agency was informed that this CLO had experienced an event of default attributed to a threshold value event that was uncured for five business days. Fitch has not received confirmation that the controlling class or the trustee intend to liquidate the underlying loan collateral in the near term. If they actually chose to liquidate the underlying loan collateral, another rating action might be taken, Fitch said in a release. This market value CLO, which is backed by leveraged loans, was Deerfield Capital Management's first foray into the European CLO market. The €300 million CLO was priced in October 2006 via Banc of America Securities (ASR, 10/26/06).

Citigroup announced that Brian Leach will assume the role of chief risk officer, reporting to Chief Executive Officer Vikram Pandit. Leach will also become acting chief risk officer for the institutional clients group. The company also named four new senior managers to the risk unit -- Suneel Bakhshi , Charles Monet, Greg Hawkins and Adil Nathani -- who will all be reporting to Leach. In his new role, Leach will work closely with Pandit heading up the bank's efforts to manage and track all risks undertaken by Citi. He will also lead the efforts to set strategic risk parameters and will play a significant role in capital allocation to make sure that Citi takes advantage of growth opportunities that meet appropriate risk-return standards. Meanwhile, Jorge Bermudez has retired. Over the last three months, Bermudez has worked closely with senior management to assess and develop a plan for the risk function. Citi also said that Bakhshi has been appointed at chief risk officer of the global consumer group and for Citibank N.A. In his new role, Bakhshi will focus on managing risk, including market, credit and operational risks, in these units. Monet will lead the risk oversight of capital allocation. He currently serves as an advisor to the co-chairmen of the Basel subcommittee defining regulatory capital requirements for default risk in banks' trading books. Hawkins will assume responsibility for risk oversight of real estate and mortgage exposure. Hawkins was an assistant professor in finance at the business school of the University of California, Berkeley. He joined Salomon Brothers in 1985, beginning in mortgage research and later becoming managing director and co-head of U.S. fixed income arbitrage. Nathani assumes responsibility for risk oversight of structured credit. He is a managing director as well as a member of Old Lane's fixed income team. Previously, he served as managing director, group executive and a board member at IXIS Capital Markets, where he also ran various units, including securitization and finance and structured credit products, among others. Before this, Nathani spent several years managing fixed income assets at Smith Breeden Associates, Ambac and Normandy Asset Management. Leach is currently the chief risk officer and co-chief operating officer of Old Lane. Before co-founding Old Lane, Leach worked his entire financial career at Morgan Stanley, most recently as risk manager of the institutional securities business. -- ASR Staff

Mourant du Feu & Jeune, an offshore law firm, has added Richard de Basto and Matthew Feargrieve to its Cayman funds and finance practice groups, respectively. De Basto joins from Allen & Overy, where he was a partner for close to eight years and concentrated on asset, construction and project finance. De Basto's current practice includes Islamic finance, restructuring and insolvency, leveraged finance, global loans, securitization and real estate finance. He will be based in Mourant's Cayman office. Feargrieve joins from Maples and Calder, where he was senior associate in the London office, advising on Cayman and BVI investment fund structures for hedge and private equity funds. Feargrieve has worked with onshore counsel in the U.S., E.U. and MENA on multi-jurisdictional transactions. He will be based in the firm's London office and will work alongside the Cayman-based funds team. Neal Lomax, partner and investment funds specialist, currently heads that team. In other people news, Mark Escott has moved from Lloyds TSB Bank after a nearly six-year stint as head of securitization to take up a similar position at The Bank of Tokyo-Mitsubishi UFJ, London Branch. In his new role at BTMU, Escott will cover client securitization deals in Europe, the Middle East and Africa. Mark will concentrate on growing the client securitization franchise using either the BTMU-sponsored conduit Albion or the bank's own balance sheet through direct origination and co-purchases.

February remittance report data are showing that serious delinquencies are increasing. " The overall performance of the indexes deteriorated as serious delinquencies and defaults increased," said analysts from Citigroup. Citigroup reported that for 06-1, 06-2, 07-1 and 07-2, the month-over-month shift in serious delinquencies was 236 basis points, 263 basis points, 201 basis points and 260 basis points, respectively, versus the 270bp, 248 basis points, 210 basis points and 264 basis points seen last month.For all the indexes, the number of loans in foreclosure rose as well, reported Citigroup. But, analysts said that for 06-1, 07-1 and 07-2, the pace of deterioration was less than that witnessed in January. According to Citigroup analysts, aside from the delinquency, the other important data point was the slowdown in prepayments (voluntary and involuntary).Prepayments fell slightly given that the defaults increasing sharply. Citigroup said that for ABX 06-1, 06-2, 07-1 and 07-2, the CPR dip was 2.74%, 0.96%, 0.66% and 0.54%, respectively. The defaults across the indexes increased by 2.19%, 1.01%, 0.52% and 0.45%, respectively.

MBIA has announced that it will stop guaranteeing ABS for six months and said that it intends to split the structured business from its municipal bond division within a five-year period. According to published reports, Joseph Brown, MBIA's new chief executive, said in a note to shareholders that this move is being made while the company evaluates its options. Meanwhile, Moody's Investors Service today confirmed MBIA's and its affiliates' 'Aaa' insurance financial strength ratings. The rating agency has also confirmed the 'Aa2' rating on surplus notes issued by MBIA Insurance Corp., and the 'Aa3' senior unsecured ratings of its parent company, MBIA Inc. The rating actions reflect Moody's assessment of MBIA's current efforts to strengthen its capital position in terms of its problematic mortgage and mortgage-related CDO exposures. The rating firm also considered the changes the company is implementing to limit the volatility associated with its insured portfolio. MBIA's current outlook is negative.

Mortgage Bankers Association Chief Economist Douglas Duncan will be leaving the mortgage industry trade group for Fannie Mae. In a statment late today, Jonathan Kempner, president and CEO of the MBA, commented on Duncan's departure. Duncan announced today that he has accepted an offer to be vice president and chief economist at the GSE. "Personally, I am very excited for Doug and this new opportunity," Kempner said. "At the same time, I lament losing his expertise and counsel on which we have come to rely. But MBA's loss is Fannie Mae's gain, and I am buoyed by the fact that America's housing industry will continue to benefit from Doug's talents." The chief economist has been with the MBA since 1992. Before joining the MBA, Duncan was a LEGIS fellow with the U.S. House of Representatives Committee on Banking, Finance and Urban Affairs. Duncan will be replacing David Berson, who left Fannie Mae for PMI Group last September. As chief economist and strategist at PMI, Berson focuses on domestic and global market research and planning, support of government relations and public policy, and strategic environmental planning.