Securitization

Dealers are working amongst themselves and with customers to decide if and when the home equity ABS synthetic index should incorporate more than the 20 deals it currently references. Those interested in either creating a new index product or increasing the number of subprime deals included in each series of the ABX.HE index - perhaps to as many as 50 or 100 - say it is necessary to promote correlation trading. But some worry that changing the index too soon after it began trading in mid-January could cause some investors to pull out.

After rushing to complete deals in time for the first quarter, issuers and arrangers pulled back last week, managing to complete about $4 billion in deals. That's well below the average weekly issuance of $10 billion so far this year, and sharply less than trader estimates of $7 billion. The market was simply catching its breath after a harried end to March, one trader explained.

Citigroup Global Markets grabbed the largest market share among U.S. ABS CDO underwriters in the first quarter of this year, according to data maintained by Thomson Financial. Citigroup rose up from third place at yearend 2005 and barely squeaked past Merrill Lynch, which some say has suffered from the loss of several key staff members earlier this year. Citigroup brought 14 deals to market totaling $6.8 billion, earning it the leading 15.2% market share. Citigroup had ranked third in the fourth quarter of last year with an 11.2% market share and 8 deals totaling $3.5 billion.

The sale of General Motors Acceptance Corp. relieved a number of ABS investors from wondering when the transaction would ever take place, but the sale is anticipated to have a somewhat minimal effect on the troubled U.S. automaker's securitizations. Market players noted tightening within certain GMAC transactions, and some speculated as to whether a new secured liquidity facility made available to the company could lower future securitization volume.

Americans ran up significant levels of debt between 2001 and 2004, according to a government survey. In this light, Citigroup Global Markets analysts warned investors to avoid subprime unsecured debt, although they did acknowledge that U.S. consumers were able to afford their debt loads.

Mortgages are off to an okay start in April after a disastrous March. The MBS Index has returned plus seven basis points in excess return versus Treasurys in the first three trading days of April, according to Lehman Brothers.

The U.S. RMBS market showed signs of slowing in the first quarter from last year's torrid pace - when year-over-year issuance increased by more than $200 billion, according to data maintained by Thomson Financial. Issuance in the first quarter reached $234.5 billion, a 15% increase over the fourth quarter's $204.4 billion, and only one more deal was completed in the first quarter than the final quarter of last year - 286 instead of 285.

Year to date as of 04/06 Term (days) 03/31 04/03 04/04 04/05 04/06 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 4,260.2 1 23.4 9 JP Morgan 3,956.1 2 21.8 10 Deutsche Bank AG 2,020.4 3 11.1 7 Barclays Capital 1,725.5 4 9.5 4 Royal Bank of Scotland Group 1,606.8 5 8.8 3 Merrill Lynch & Co Inc 1,250.0 6 6.9 3 Credit Suisse 950.0 7 5.2 2 Wachovia Corp 939.0 8 5.2 3 Bear Stearns & Co Inc 824.9 9 4.5 1 Goldman Sachs & Co 411.2 10 2.3 1 Industry Total 18,189.0 - 100.0 21 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 8,676.4 1 18.1 11 Citigroup 6,807.5 2 14.2 14 UBS 4,764.0 3 10.0 11 Banc of America Securities LLC 4,403.4 4 9.2 13 Deutsche Bank AG 4,304.0 5 9.0 7 Credit Suisse 3,621.4 6 7.6 5 Bear Stearns & Co Inc 3,551.6 7 7.4 8 Goldman Sachs & Co 2,280.9 8 4.8 4 Morgan Stanley 2,107.5 9 4.4 11 Wachovia Corp 1,857.3 10 3.9 6 Industry Total 47,856.2 - 100.0 106 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 JP Morgan 5,974.7 1 29.8 11 Citigroup 4,447.1 2 22.2 7 Banc of America Securities LLC 3,723.3 3 18.6 6 Deutsche Bank AG 2,075.0 4 10.4 6 Morgan Stanley 1,829.0 5 9.1 2 Credit Suisse 625.0 6 3.1 2 Barclays Capital 500.0 7 2.5 1 Lehman Brothers 250.0 8 1.3 1 Wachovia Corp 249.9 9 1.3 1 Merrill Lynch & Co Inc 225.0 10 1.1 1 Industry Total 20,049.0 - 100.0 30 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 15,130.9 1 10.6 34 Countrywide Securities Corp 15,001.3 2 10.5 17 Credit Suisse 14,874.1 3 10.4 29 Morgan Stanley 13,244.8 4 9.3 17 Deutsche Bank AG 10,553.1 5 7.4 18 Bear Stearns & Co Inc 10,364.3 6 7.3 30 Merrill Lynch & Co Inc 10,045.8 7 7.0 13 Citigroup 8,235.2 8 5.8 22 Royal Bank of Scotland Group 7,931.6 9 5.6 11 JP Morgan 7,355.2 10 5.1 12 Industry Total 142,977.6 - 100.0 240 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 2,915.8 1 18.0 4 Deutsche Bank AG 2,801.0 2 17.3 3 Merrill Lynch & Co Inc 2,301.0 3 14.2 2 Banc of America Securities LLC 2,027.7 4 12.5 3 Credit Suisse 1,698.4 5 10.5 3 Lehman Brothers 1,284.7 6 7.9 1 Goldman Sachs & Co 1,255.5 7 7.7 1 UBS 450.4 8 2.8 1 SunTrust Banks 382.5 9 2.4 1 Industry Total 16,222.9 - 100.0 11 Source: Thomson Financial

auto ABS 8% credit card ABS 9% enterprise finance 0% equipment ABS 1% real estate ABS 74% structured settlements 0% student loan ABS 8% trade receivables 0%

When a New Jersey state senator proposed nearly two weeks ago to raise $6 billion by selling half of the state's two major highways to shareholders, it wasn't just another New Jersey Turnpike joke. Instead, it was a sign that there is growing incentive among several sectors for innovative toll road financing. That, according to some ABS market professionals, includes toll road securitization in the U.S.

An arbiter's ruling last week might prompt several tobacco companies to reduce pending April payments to states under the 1998 Master Settlement Agreement (MSA). Although these cash flows are used to securitize billions of dollars in ABS deals, market sources only expect the potential shortfall to adversely affect the scheduled turbo payments on those deals.

Moody's Investors Service last week unveiled a new service aimed at helping a burgeoning class of U.S. cash CDO equity investors - mostly hedge funds - track how well their investments are performing. The rating agency will begin providing monthly reports, called the Moody's Equity Score Report,' on such indicators as internal rate of return, dividend and yield distributions and the most recent year's equity payment. In the first release of this report, Moody's analysts found that emerging market CDO equity pieces yielded the highest returns compared to other asset classes, while high yield CBOs were more likely to disappoint their investors.

The franchise loan sector, which saw no traditional loan pools securitized in 2005, is expected to begin a slow turnaround in 2006, with stabilizing loan pools and improvements in the underlying franchise business operations. But it will be a hard-won recovery, predict analysts from Fitch Ratings. They are maintaining a negative outlook on the sector as they expect more credit downgrades versus upgrades going forward.

Year to date as of 03/30 Term (days) 03/24 03/27 03/28 03/29 03/30 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 4,260.2 1 23.4 9 JP Morgan 3,956.1 2 21.8 10 Deutsche Bank AG 2,020.4 3 11.1 7 Barclays Capital 1,725.5 4 9.5 4 Royal Bank of Scotland Group 1,606.8 5 8.8 3 Merrill Lynch & Co Inc 1,250.0 6 6.9 3 Credit Suisse 950.0 7 5.2 2 Wachovia Corp 939.0 8 5.2 3 Bear Stearns & Co Inc 824.9 9 4.5 1 Goldman Sachs & Co 411.2 10 2.3 1 Industry Total 18,189.0 - 100.0 21 Source: Thomson Financial