Securitization

The covered bond market took a huge leap forward in projected volume last week, when two new issuers tapped the capital markets for about 5.4 billion ($7.9 billion in financing for residential mortgage portfolios.

The mortgage industry modified roughly 54,000 loans and began formal repayment plans with an additional 183,000 borrowers, according to a study released by the Mortgage Bankers Association (MBA) last week.

Rising mortgage delinquencies mean new business for scratch and dent lender Kondaur Capital Corp. With the expectation of a recession in 2008, depreciating real estate prices should lead to rising defaults and foreclosures until 2011. This would mean more buying opportunities in this troubled sector, said Jon Daurio, chairman and chief executive officer of Kondaur.

Arranger Unicredit Aton International hopes the anxiety of Western European investors will ease soon enough for them to consider a slice of a short-term cash CLO of Russian SMEs that closed at the end of December. "We are holding a small piece on a repo basis," said Dmitry Kozodoy, director of Aton's securitization department.

The battle for Northern Rock still isn't over, and a quick-fix solution is now nothing but a dream.

U.K. buy-to-let lender Paragon has announced a GBP287 million ($563 million) rights issue, which would repay the company's GBP280 million working capital facility due on Feb. 27. Aside from improving its financial situation, the firm can also avoid the penalty interest rates that its financiers were proposing through this offering.

Lehman Brothers is making a lot of noise about its new U.K. RMBS loan modification program through which the firm aims to protect its nonconforming RMBS transactions. The loan modification process consists of a number of potential alternative strategies such as payment deferrals and the extension of maturity dates, among others.

Much ado was made about the string of soccer securitizations backed by popular teams with a global presence. But the reality is that outside the big names, securitization has proved too costly for many teams in the European soccer leagues.

As the American economy appears to be on the precipice of a recession, the industry is now engaged in a dual debate about how to stave off a market downturn and how to recover from one.

There wasn't any good news that emerged from the European CDO sector in 2007. But for banks and investors who braved the market and looked for some value in this beleaguered sector, European synthetic CDO tranches offered some respite.

The overall European ABCP market in 2007 was characterized by uncertainty. There were more questions than answers, and there was very little deal activity.

The European banking sector has been accused of being inadequately prepared to support securitization structures under crisis scenarios, despite a heavy reliance by these banks on the capital markets engine for funding. However, through new initiatives, European regulators are now making sure these financial institutions are more aware of the risks involved.

The Middle East seems to be immune to the rest of the problems ailing the securitization world. The oil-rich nations are now sponsoring Shariah-compliant CMBS and RMBS using proceeds from petroleum wealth to serve as a liquidity backup.

From the beginning, many ABS professionals greeted the master liquidity enhancement conduit (M-LEC) plan with hearty skepticism.

A number of emerging market players delighted in the rhetoric last year about their world trading places with the U.S. The longtime risky bet and the safe haven, it appeared, had flipped.

Securitization investors aren't the only ones getting jittery in the current credit environment. The negative headlines that dominated 2007 seem to be making consumers nervous, and this edginess has translated into scarce deal flow for credit card ABS.

Not too many securitization players are going to remember 2007 fondly. That applies to emerging market devotees too.

Issuers from mature asset classes as well as the small business sector gave the securitization market a fledgling start to the new business year. At least $4 billion in deals were expected to price by around Jan. 11.

After last month's announcement that uber-wealthy investor Warren Buffett's Berkshire Hathaway would be starting up a new municipal bond insurer, many industry participants felt that the competition would likely deepen the already strained capital positions of other wrap providers.

Recognizing that 2007 was an unusual year, and that highlighting individual transactions would not convey the ethos of a tumultuous year, the ASR staff has decided to veer away from our usual practice of naming notable deals. Aside from the comparatively scarce deal flow in 2H07, 2007 was notable not because of innovative transactions, but it will go down in history as a year of reckoning for all industry participants.