Securitization

Weeks after announcing poor 4Q07 earnings and massive write-downs, Merrill Lynch is making drastic cuts to its structured finance group.

Best of Times, the Worst of Times

The passing of 2007 marked a historic period in the U.S. student loan industry. An unprecedented amount of attention was directed towards student loan market participants in both federal and private programs. Business practices, underwriting, servicing and marketing practices were put under a microscope over the course of the year. As we enter the second month of 2008, education continues to be a hot topic in Congress with the presidential election fast approaching. Legislation passed in 2007 will begin to have its affects felt in 2008, with additional higher education reform proposals likely to follow.

The impact of the subprime crisis has been broad and deep on Wall Street. The consequent economic losses and personnel layoffs (which, as of this date, may be far from complete) seem to be worse than at any other time over the last 25 years - at least in so far as it has impacted the structured finance sector of the market.

As 2007 came to a close, MBS players around the world steeled themselves against subprime contagion. But Hipotecaria Total (HiTo) took a bold step forward unveiling a highly innovative, mortgage securitization vehicle in Mexico and issuing the first so-called Bonhitos on December 20. HiTo was founded barely a year earlier for the sole purpose of creating and sponsoring an efficient platform for the securitization of mortgages in Mexico.

Five months after a liquidity crisis halted trading on about one quarter of the outstanding paper in the Canadian ABCP market, banks have made several key changes that have drastically tightened spreads and opened the possibility of a global market for Canadian ABCP.

Brown Rudnick has brought together staff from its structured finance, bankruptcy and corporate restructuring and distressed debt practices to form a structured resolution group.

As market participants move forward into 2008, many have hopes of liquidity returning to the ABS market. To this end, increased deal transparency is paramount to bringing investors back into the space, market sources said.

Many view securitization as the culprit behind our subprime woes. However, the basic tenet of securitization remains a valuable financing tool whose benefits have yet to be fully realized. Though commonplace in the private sector, securitization is largely foreign to public finance, particularly in the troubled transportation sector. This article addresses the compelling case for applying securitization techniques to reduce airport financing costs for beleaguered airlines and helping address capacity constraints at high "origin and destination" airports such as JFK, LaGuardia, Newark and LAX.

Best of Times, the Worst of Times

As more banks realize the liquidity potential in European covered bonds, issuance volumes are expected to rise in 2008.

Reflecting the tone of markets worldwide, the second half of the year was a tough time for issuance from emerging markets in the CIS (former Soviet Union countries) and in Turkey. Among the deals tracked by ASR, the total ABS volumes in these areas - including a couple of domestic Russian transactions - amounted to about $5.9 billion, a steep decline from $9.6 billion in 2006 (see table, p. 28-29).

The Latin American cross-border market was energized by a few watershed events in 2007, especially in the field of existing assets. But volumes still failed to reach the heights of previous years, and the same troubles afflicting other arenas of structured finance crushed activity in the second half of 07.

Depending on the criteria, volumes in Brazil's structured finance market either boomed or tanked last year. Factoring in private deals that are widely understood to be entirely tax-motivated, volumes hit about R$15.5 billion ($8.7 billion), a nearly 29% leap from 2006, according to data collected by local consultancy Uqbar.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 1,578.8 1 23.378 3 Wachovia Securities 1,223.8 2 18.121 2 Goldman Sachs 1,078.7 3 15.972 2 ABN Amro 906.7 4 13.426 2 RBS Greenwich Capital 744.5 5 11.024 1 Credit Suisse 625.0 6 9.254 1 Citigroup Global Markets 334.2 7 4.949 1 Banc of America Securities 261.8 8 3.877 1 Industry Total 6,753.5 - 100.0 6 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Industry Total 0.0 - 100.0 0 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 4,312.7 1 27.144 3 Banc of America Securities 4,200.0 2 26.435 5 Citigroup Global Markets 3,400.0 3 21.4 2 Deutsche Bank Securities 1,512.7 4 9.521 2 Barclays Capital 1,066.7 5 6.714 2 Credit Suisse 896.0 6 5.639 1 Wachovia Securities 500.0 7 3.147 1 Industry Total 15,888.1 - 100.0 11 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Lehman Brothers 1,715.6 1 100.0 2 Industry Total 1,715.6 - 100.0 2 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Deutsche Bank Securities 511.2 1 33.331 1 Barclays Capital 511.2 1 33.331 1 Citigroup Global Markets 511.2 1 33.331 1 Industry Total 1,533.7 - 100.0 1 Source: ASR Scorecard database

auto ABS 30% credit card ABS 56% real estate ABS 8% student loan ABS 7%