Securitization

Last Wednesday, participants in the ABX.HE for the first time ushered in a fresh series of deals with what seemed to be little fanfare. While not everyone shared the same view on credit characteristics underlying the new index, called the ABX.HE 06-2, many felt that market technicals would drive much of the early spread activity. As of last week, a number of sources were expecting ABX.HE 06-2 spreads to settle at a thinner level than those on the initial ABX.HE 06-1 index - particularly at the lower end of the capital structure.

The new ABX index rollout last Monday might have been the highlight of an otherwise quiet week, but it did not do much to elevate the amount of paper issued. Although $13 billion in deals were in the market last week, just $2.4 billion priced by Thursday.

If First Marblehead Corp., the Boston-based private student loan finance company, succeeds in buying Union Federal Savings Bank as it announced last week, there is a chance that it could scale back its securitization program.

Fitch Ratings last week introduced what it is calling a first-of-its-kind synthetic CDO risk modeling tool. The program - called RAP CD - is the result of a year's worth of work by a London-based team of analysts led by Group Managing Director Kimberly Slawek. It is said to be unique because it allows investors a better means at which to anticipate and manage portfolio volatility. So far, the product only works for CDOs that use corporate credit default swaps, although the ability to assess risk with asset-backed derivatives is on the way, according to the rating agency.

The International Swaps and Derivatives Association (ISDA), along with 14 major credit derivatives dealers and two other industry groups, have joined together to push the industry to continue efforts to improve credit derivatives processing.

In ASR's July 17, 2006 issue, the story "$30M Deal May Reshape Consumer Industries" incorrectly stated that CAK Universal Credit Corp. had structured the Bowie Bonds. Additionally, in the market story, Barclays Capital was incorrectly identified as the lead manager on the CNH Equipment Trust 2006-1 transaction. ABN AMRO was sole lead manager on the deal.

As National City Corp. contemplates offers for its subprime lending subsidiary First Franklin Loan Corp., many in the industry are wondering if one of those suitors could be a Wall Street investment bank. Spurred by visions of more profitable and streamlined home equity ABS businesses, many dealers have recently scooped up sometimes - and now more frequently - ailing subprime lenders.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Corp 6,106.4 1 17.1 11 Citigroup 6,027.5 2 16.9 12 JP Morgan 5,062.5 3 14.2 12 Barclays Capital 2,877.0 4 8.1 5 Deutsche Bank AG 2,690.2 5 7.5 8 Royal Bank of Scotland Group 2,169.3 6 6.1 5 Banc of America Securities LLC 1,925.9 7 5.4 3 Merrill Lynch & Co Inc 1,847.5 8 5.2 4 Credit Suisse 1,550.0 9 4.3 3 HSBC Holdings PLC 1,329.2 10 3.7 2 Industry Total 35,757.2 - 100.0 45 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch & Co Inc 20,899.6 1 15.9 26 Citigroup 19,200.4 2 14.6 32 Deutsche Bank AG 14,791.1 3 11.2 19 Banc of America Securities LLC 9,548.4 4 7.3 22 UBS 8,224.1 5 6.3 38 Credit Suisse 8,129.2 6 6.2 14 Bear Stearns & Co Inc 8,063.9 7 6.1 16 Wachovia Corp 6,954.0 8 5.3 15 Royal Bank of Scotland Group 6,499.7 9 4.9 8 Morgan Stanley 5,877.5 10 4.5 26 Industry Total 131,566.4 - 100.0 264 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Banc of America Securities LLC 10,235.0 1 25.8 13 Citigroup 8,982.0 2 22.6 13 JP Morgan 7,824.7 3 19.7 18 Deutsche Bank AG 2,924.9 4 7.4 8 Morgan Stanley 2,289.8 5 5.8 4 Barclays Capital 2,260.8 6 5.7 6 Credit Suisse 1,735.8 7 4.4 8 ABN AMRO 1,000.0 8 2.5 5 HSBC Holdings PLC 1,000.0 8 2.5 1 Merrill Lynch & Co Inc 500.0 10 1.3 2 Industry Total 39,703.0 - 100.0 58 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Lehman Brothers 34,359.3 1 11.0 78 Royal Bank of Scotland Group 30,141.7 2 9.6 74 Countrywide Securities Corp 30,076.9 3 9.6 47 Morgan Stanley 27,201.9 4 8.7 27 Credit Suisse 24,874.9 5 7.9 66 Deutsche Bank AG 20,921.2 6 6.7 49 Bear Stearns & Co Inc 20,267.0 7 6.5 64 Merrill Lynch & Co Inc 19,940.2 8 6.4 32 Goldman Sachs & Co 17,232.8 9 5.5 32 Citigroup 15,769.7 10 5.0 46 Industry Total 313,421.9 - 100.0 615 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 7,390.8 1 19.3 10 Deutsche Bank AG 6,320.7 2 16.5 9 Merrill Lynch & Co Inc 3,420.1 3 8.9 3 Credit Suisse 3,306.5 4 8.6 6 Goldman Sachs & Co 2,941.3 5 7.7 4 Lehman Brothers 2,834.1 6 7.4 2 Morgan Stanley 2,568.2 7 6.7 3 Banc of America Securities LLC 2,550.5 8 6.6 4 RBC Capital Markets 2,179.0 9 5.7 4 Wachovia Corp 1,610.0 10 4.2 1 Industry Total 38,396.5 - 100.0 30 Source: Thomson Financial

auto ABS 9% credit card ABS 8% enterprise finance 0% equipment ABS 2% real estate ABS 71% structured settlements 0% student loan ABS 9% trade receivables 1%

The U.S. House of Representatives voted last Wednesday to reform the credit ratings industry. Observers in the asset securitization industry responded with a mixture of relief, dismay, and by setting up a potentially bitter fight to bring changes to a previously untouched segment of the financial services industry.

Securitizations backed by reverse mortgages are expected to boom in the second half of this year, with as many as six deals being discussed in the market, according to private and rating agency sources. The sector has piddled along in recent years, restrained by low volume and secondary market unfamiliarity. Now, sizable strides in origination volume and more accommodating regulatory changes have drawn the interest of investment bankers - always happy to stumble upon a new and, at least initially, higher-yielding asset class.

NEW YORK - As far as growth in emerging asset classes is concerned, extendible notes in ABCP programs and student loan-backed ABS have both come a long way recently. Now their paths are converging.

The first "roll," or introduction of a new series of names for the ABX.HE, is expected to proceed smoothly this week, according to industry sources. That could be due in part to the fact that - in contrast to synthetic indices of corporate names - when the ABX.HE 06-2 series is introduced this week, a wave of cash is not expected to slosh to it from the 06-1 series. While the new series will be more liquid than the previous series, total outstanding volume is not expected to go to zero for many years, UBS analysts said. The index will also not switch on Wednesday from its current 20-name format to include more names, as some market players had hoped.

The broader bond market perked up in the face of a faltering stock market, and the ABS sector prepared to follow suit, with almost $15 billion in deals that priced and were being marketed last week. By press time, about $7 billion of that amount was launched.

Resource America Inc. subsidiary Resource Real Estate is gearing up to close the first of two CDOs it plans to bring to market this year. The $345 million deal, Resource Real Estate Funding 2006-1, is backed primarily by mezzanine, B-notes, and a 20% share of commercial real estate whole loans.

NEW YORK - Acquiring a pool of loans isn't what it used to be. Mounds of sensitive consumer information moves around the structured finance market at dizzying speeds these days. Last week, the American Securitization Forum asked market participants if they have taken the right steps to protect against information breeches, and if they were aware of the legal burdens tied to consumer information. These were asked at the ASF's sunset seminar on Securitization Ethics and Professional Responsibility held here.