Securitization

Faced with no viable outside near-term options to shore up its structured investment vehicle (SIV) programs, HSBC decided to come up with a plan of its own. Last week, the bank announced that it will take the assets of its two SIVs, Cullinan Finance and Asscher Finance, and consolidate them into one SIV.

There may be three weeks remaining in the asset backed securities production year, but traders and analyst say any serious action will remain under wraps until 2008.

Barclays Capital's largest Europe-based ABS investor clients can expect their ABS portfolios to grow at a weighted average of 10% for the next 12 months, according to the bank's third annual European ABS investor survey. That represents a decline from last year's result.

A few Mexican players have locked their sights on a virgin patch of ABS terrain, and, if they have their way, it'll be covered in trees within a few years. Structurer SAI Consultores has teamed up with placement agent Credit Suisse in a deal that combines some of the riskier elements of forestry securitization with the safety of local treasuries. Timber and cattle company Agropecuaria Santa Genoveva is originating the deal, currently sized at between Ps1.5 billion ($137 million) and Ps2.2 billion, and potentially due before year end, according to Gustavo Meillon, a senior associate at SAI.

Bucking the furtive approach of its rivals, ABN AMRO went public last week with a mortgage warehousing facility in Kazakhstan. The global bank recently closed a $200 million deal with client BTA Ipoteka, the originating unit of Bank TuranAlem. The ultimate idea is to package the collateral into an RMBS, an event that probably won't happen in the first half of the year.

It is a reasonable assumption that during Thanksgiving dinner, thousands in the ABS business returned to the tradition of going around the feast table and counting their blessings.

Price dislocation in the CDO market has not only halted new issuance but has made the value of existing CDO securities almost impossible to assess. In an effort to address these valuation issues, Moody's Investors Service's Wall Street Analytics (WSA) recently launched Credit Values DCV (Discounted Cash Value), a product the rating agency hopes will enhance the transparency of CDOs by providing investors with valuation information about their securities.

Doubt over the monolines' triple-A-rating stability has been the subject of negative headlines since last summer. While a downgrade would have a dire effect on a guarantor's business model, particularly in the municipal bond market, which is especially dependent on the triple-A guarantee, there may be capital financing alternatives, market participants say.

Perhaps the most surprising element of the escalating concern about mispriced and hidden risk in financial markets is the lack of focus on derivatives - so far.

The Internal Revenue Service's proposed changes to commercial real estate mortgage investment conduits will offer more flexibility for borrowers looking to modify their loans and bring the regulations up to date with today's market, according to proponents of the adjustments.

The SIV unease continues to unfold with more drama. Moody's Investor Service announced recently that 16 SIVs, holding approximately $30.3 billion of debt securities, have been placed on review and face possible downgrade. Among the carnage are some of the more established vehicles from veteran players like Citigroup, Rabobank and HSBC. The negative news sent pricing spreads spiraling out to crisis-mode levels.

The one-time giant among U.K. mortgage lenders, Northern Rock, which holds a fifth of all residential mortgages, continues to find itself hobbled. Despite continued assistance from the Bank of England and impending takeover bids, the fate of the bank's Granite master trust is now facing dark predictions.

Fitch Ratings' second annual Emerging Markets conference, held recently in London, started off positively enough. While presenting slide after slide of optimistic news for investors looking for potential opportunities in the sector, the rating agency noted that in 2007 most sovereign ratings of countries with active ABS markets were listed as "positive."

Once exclusively available to the well-to-do, credit has been descending the socio-economic ladder in Mexico and Brazil during the past few years. Easing interest rates and healthy growth, among other factors, are inducting more low-to-middle income borrowers into the credit culture club of Latin America's two bulkiest economies.

Walled in between the widespread perception of contagion in the financial markets and a long list of announcements of writedowns and layoffs, securitization industry professionals found themselves confronting another quiet week of productivity.

Aiming to create what it calls "a single family of global indices," Markit has acquired International Index Co. and agreed to acquire CDS IndexCo, in what will be the biggest and most important acquisition the company has made to date, according to Kevin Gould, executive vice president at Markit.

The coming months will likely bring an unprecedented amount of new litigation concerning asset-backed securities (ABS) and mortgage-backed securities (MBS) issued over the past two years. Disappointed investors are likely to pursue remedies on the strength of a variety of legal theories. Two concepts appear to be the most interesting at this point: (1) deficient disclosure about the trend of deteriorating loan quality and (2) deficient disclosure about the release of excess spread.

In what seems like an endless stream of write-downs on subprime RMBS and ABS CDO holdings, banks have had to revaluate their positions in the structured finance market, which lately means personnel reorganizations. But not all market participants are convinced that an internal restructuring will help solve the banks' problems.

While the subprime bullet has only nicked domestic issuance in Latin American structured finance, and there's plenty of liquidity among local investors to shrug off the crunch abroad, the cross-border front has been struggling to hop back on the rails.

When Citigroup announced on Nov. 4 that it anticipated the fair value of approximately $55 billion in subprime exposures would decline somewhere between $8 billion and $11 billion, the imprecise estimate highlighted a problem faced by participants in the structured debt market. It also underscored the need for a better way of valuing certain asset- and mortgage-backed securities.