Securitization

Las Vegas - The structured investment vehicle (SIV) market came up with several major developments in 2006, including two repeat sponsors that launched new vehicles, and a new type of sponsor, likely the Canadian Teacher's Fund. In the year ahead, expect to see U.S. pension funds take a closer look at participating in the sector, while some managers examine new possibilities for underlying assets, including structured finance paper, said industry professionals at the ASF 2007 in Las Vegas last week.

Although the rumor was running rampant throughout the industry last week, it appears as though Bank of America Corp. is not interested in acquiring or embarking on a joint venture with mortgage giant Countrywide Financial Corp. Analysts noted last week that it's highly unlikely BofA would consider buying a mortgage lender that seeks to finance itself through bank deposits. At most, they said, the bank might consider something along the lines of outsourcing its mortgage processing to Countrywide.

Las Vegas - Cohen & Co. last week announced it had snagged Taro Masuyama, the former head of Asia Pacific and Japan structured credit products at Merrill Lynch, to head up its new asset management business in the Asian-Pacific region, Cohen Asia. During Masuyama's seven-year tenure at Merrill, he oversaw the investment bank's CDO business in the region, which originated both cash and synthetic CDOs backed by Japanese and other Asian assets.

Generally considered a setting to indulge brazen debauchery, Las Vegas last week was the scene for an industry conference that, instead, set down to work.

From the early morning sessions to the wee morning hours, conversations at last week's ASF 2007 conference held in Las Vegas seemed to inevitably turn to subprime mortgages and the fate of ABS CDOs, among other things - such as the Miss America Pageant taking place down the strip.

Las Vegas - Auto lease ABS professionals highlighted several industry trends for the year ahead at the ASF 2007 conference held here last week, including weakened demand for new cars and higher program concentration limits for foreign vehicles. High on the list, however, was the use of floorplan assets in multiseller extendible note (EN)ABCP programs.

Las Vegas - The small, tidy timeshare loan ABS market performed well in 2006, thanks to new product offerings that increased sales. Prospects should be equally good for 2007, said several industry professionals yesterday during a panel reviewing the timeshare sector at the ASF 2007 conference in Las Vegas last week.

Las Vegas - The growing clout of CDO equity funds is leading to so-called activist equity investors, according to market participants at ASF 2007 held here. Investors are asking for lower management fees, or, in some cases, no management fees, as well as higher return guarantees. One CDO recently marketed skipped subordinate management fees altogether, and an increasing number of deals are being structured without interest coverage and overcollateralization triggers.

Las Vegas - Although market participants are still waiting on official word regarding how to implement certain provisions of Regulation AB, Paula Dubberly, Securities and Exchange Commision associate director, gave a good indication of what the SEC stance is on the issue of third-party assessments at last week's ASF 2007.

The following is an exclusive interview with GSC Group's Seth M. Katzenstein, managing director and head of portfolio management and underwriting, U.S. collateralized corporate debt, and Alexander B. Wright, managing director and head of origination, U.S. collateralized corporate debt. GSC recently took time to answer questions on topics including investment strategy, CDO structuring and the market's future potential.

In the clubby world of smaller middle-market lending, CLO managers are having a hard time obtaining creme-de-la-creme middle market collateral. That is, unless you are able to obtain a member's only jacket in the form of an origination platform. In fact, the majority of MM CLO managers going forward are expected to be seen as part of a specialty manager or orgination platform.

After increasing the estimated construction costs for building an emissions control facility at a West Virginia plant, and adding a novel twist to the deal's structure, Allegheny Energy, Inc. received approval from the Public Service Commission of West Virginia to use asset-backed securities to finance the project.

Ready to learn a thing or two about how to expand their corners of the ABS business, industry professionals are swarming around Las Vegas this week for the ASF 2007'.

To stay competitive, electronic gadgets in our day and age have to be multi-dimensional. It's not enough for a cell phone to merely make calls, it must also play music, send e-mails, take pictures and perform myriad other tasks. If it does only one thing, it will fail.

After much talk, it appears that Cairn Capital will produce the first managed CPDO, to be sold by arranger JPMorgan Chase & Co. The deal is among the latest in a string of variations on ABN Amro's flagship CPDO product, Surf, which debuted last Fall. While a number of investors are still scratching their heads as to how, exactly, the structure works, arrangers are cooking up plans for all sorts of CPDOs, including managed deals, those that reference the ABX indices and those that reference bespoke portfolios.

The majority of outstanding mezzanine CDOs will experience HEL downgrades within their portfolios this year, Lehman Brothers researchers wrote in a report last week. Given an environment with 5% home price appreciation, roughly 90% of mezzanine CDOs originated between 2003 and 2006 will have exposure to HEL bonds due for a rating agency downgrade, the researchers said. What's more, one-fifth of outstanding mezzanine CDOs have 10% or more exposure to the expected downgrades, and in a flat HPA scenario, roughly 30% of outstanding CDOs would have a 10% or higher exposure.

During its last full workweek of January, the ABS market started off by displaying a full spectrum of sentiments. On one extreme end, investors remained wary of spread levels to enter into ABX trades after the rollout of the third ABX.HE index, series 07-1.Trading on that rollout started on Jan. 19. Conversely, issuers were eager to exhibit their wares ahead of the popular ABS 2007 industry conference now underway in Las Vegas.

U.S. small business loan ABS will likely undergo higher delinquencies for the first half of 2007, because of shifting economic conditions and credit concerns.

By David Glehan, director, and Amanda Hopkins, rating specialist, Standard & Poor's

The consumer credit outlook for 2007 looks benign. Although mortgage delinquencies and foreclosures are rising, they are up from exceptionally depressed levels. There was little room for them to go anywhere but higher.