Securitization

MBIA Insurance Corp. may still have to pay some insurance claims on ABS deals it wrapped for now-bankrupt student loan lender Student Finance Corp. after hundreds of millions of dollars of that company's student loans defaulted as a result of alleged fraud.

For the second week in a row, the U.S. ABS primary market has generated $13 billion in new issuance. As usual, the calendar was dominated by real estate related deals, with three credit card deals, an auto deal, a student loan deal and an insurance receivables deal sneaking their way into the market.

Atlantic & Western Re Limited was set to price a $300 million catastrophe bond private placement last week on the heels of two vicious hurricane seasons that saw eight storms ravage the U.S. Gulf Coast and Florida regions in the past 15 months. The deal marks the sixth issuance this year in the under-the-radar sector.

Almost one year to the date of its first-ever CDO issuance, Maxim Advisory last week brought to the market its first CDO backed by mezzanine-grade RMBS collateral. The deal is the fourth for Maxim, a unit of broker-dealer Maxim Group LLC.

An increasingly wide band of market players looking to express a shorting interest in home-equity ABS has ballooned the credit default swap market on the month to more than $4 billion in bid and offer lists - surpassing cash market volumes, according to Lehman Brothers, and gapping out spreads on CDS premiums by as much as 250 basis points. Most of the activity has occurred at the triple-B rated levels, and 90% of protection buyers have focused on the 2004 and 2005 vintages, indicating an overwhelmingly bearish view of the housing market going forward.

Despite rising interest rates, the number of subprime mortgage borrowers opting to refinance their mortgages increased in September, in one scenario by as much as 21.8% over the previous month, according to Michael Youngblood, head of ABS research at Friedman Billings Ramsey.

Pacific Investment Management Co.'s Pacific Coast CDO Ltd., which was brought to the market by Credit Suisse First Boston in late September 2001, received another rash of downgrades last week.

The nature of CLO exposure to troubled U.S. auto parts supplier Delphi Corp. shows how much those deals are, and have been, thirsty for loans that will offer higher-than-average spreads, according to Standard & Poor's.

Year to date as of 10/27 Term (days) 10/21 10/24 10/25 10/26 10/27 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Deutsche Bank AG 8,744.1 1 12.2 15 Citigroup 8,299.9 2 11.5 14 JP Morgan 8,270.8 3 11.5 13 Merrill Lynch & Co Inc 7,943.7 4 11.1 10 Banc of America Securities LLC 7,695.8 5 10.7 12 Wachovia Corp 7,317.1 6 10.2 14 Barclays Capital 5,531.6 7 7.7 10 Credit Suisse First Boston 4,561.9 8 6.3 9 Goldman Sachs & Co 3,564.1 9 5.0 4 HSBC Holdings PLC 3,334.4 10 4.6 5 Industry Total 71,916.0 - 100.0 68 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 19,472.7 1 17.6 28 Citigroup 14,645.2 2 13.2 33 Wachovia Corp 9,941.1 3 9.0 18 Bear Stearns & Co Inc 8,941.3 4 8.1 22 Morgan Stanley 8,824.2 5 8.0 31 Deutsche Bank AG 7,080.6 6 6.4 17 Banc of America Securities LLC 6,524.5 7 5.9 22 JP Morgan 5,293.0 8 4.8 14 UBS 5,278.1 9 4.8 12 Lehman Brothers 5,147.7 10 4.7 16 Industry Total 110,736.4 - 100.0 262 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 11,469.1 1 25.7 22 Citigroup 8,147.0 2 18.2 20 Barclays Capital 4,891.0 3 10.9 14 Deutsche Bank AG 3,776.7 4 8.5 18 Banc of America Securities LLC 3,133.2 5 7.0 12 Morgan Stanley 3,016.5 6 6.8 5 Credit Suisse First Boston 2,250.0 7 5.0 7 Lehman Brothers 2,000.0 8 4.5 5 ABN AMRO 1,833.2 9 4.1 7 Royal Bank of Scotland Group 1,285.8 10 2.9 5 Industry Total 44,717.5 - 100.0 87 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 Morgan Stanley 2,441.7 1 18.3 4 Deutsche Bank AG 2,418.6 2 18.1 4 ABN AMRO 1,643.6 3 12.3 3 Barclays Capital 1,492.5 4 11.2 2 Credit Suisse First Boston 1,243.6 5 9.3 2 Banc of America Securities LLC 750.0 6 5.6 1 Lehman Brothers 725.8 7 5.4 1 JP Morgan 725.8 7 5.4 1 HSBC Holdings PLC 566.7 9 4.2 1 Merrill Lynch & Co Inc 375.0 10 2.8 1 Societe Generale 375.0 10 2.8 1 Industry Total 13,350.2 - 100.0 13 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 Countrywide Securities Corp 57,771.1 1 10.6 66 Lehman Brothers 53,802.1 2 9.9 106 Bear Stearns & Co Inc 49,370.6 3 9.1 109 Royal Bank of Scotland Group 48,165.9 4 8.9 78 Credit Suisse First Boston 44,118.0 5 8.1 94 Morgan Stanley 39,074.8 6 7.2 51 Deutsche Bank AG 36,488.5 7 6.7 69 Citigroup 30,782.8 8 5.7 79 Merrill Lynch & Co Inc 29,391.3 9 5.4 46 Banc of America Securities LLC 26,272.9 10 4.8 60 Industry Total 543,819.8 - 100.0 1,080 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 10,698.2 1 23.0 14 Deutsche Bank AG 6,180.8 2 13.3 9 Banc of America Securities LLC 5,330.5 3 11.5 9 Merrill Lynch & Co Inc 4,261.6 4 9.2 4 Morgan Stanley 3,883.6 5 8.3 4 Goldman Sachs & Co 3,386.1 6 7.3 6 Credit Suisse First Boston 3,367.9 7 7.2 5 UBS 2,527.7 8 5.4 5 JP Morgan 2,367.4 9 5.1 5 Lehman Brothers 2,138.5 10 4.6 2 Industry Total 46,562.6 - 100.0 38 Source: Thomson Financial

auto ABS 16% credit card ABS 8% global MBS 4% real estate ABS 59% student loan ABS 9% other 4%

While the tangible effect of actual losses in CDO portfolios due to the presence of Refco Inc. loan and bond collateral is in large part minimal, perhaps the largest losses to be faced within the CDO market stem from what could trigger a turn in investor confidence.

For the past two years, the industry's two winter conference events, Information Management Network's ABS West, and the American Securitization Forum's annual ABS conference have gone toe to toe, with IMN proving the significantly larger draw. The two events have been held as close as one week apart, and many firms, issuers and investors are now choosing to only attend one. For the past two years, the ASF's conference has played second fiddle, luring roughly one-third the audience. This year, however, there appears to be a growing swell of support for ASF 2006.

The announcement that General Motors Corp. is exploring the sale of a controlling stake in its financing arm, General Motors Acceptance Corp., had ABS market participants speculating about the possible impact a sale would have on its outstanding retail auto loan and wholesale dealer floorplan deals. While the main concern surrounds the dealer floorplan ABS, the market will likely not be able to gauge the true impact of the sale until a potential buyer steps forward. Overall, however, the market reaction was one of relief. "This could be a huge positive for GMAC," said one ABS analyst.

U.S. ABS upgrades outpaced downgrades in the third quarter for the first time since 3Q01, according to a report by Moody's Investors Service. accounting for 114 of the 175 ratings actions throughout the quarter, with downgrades dropping off 38% from the previous quarter to finish with 61.