Securitization

With a new angle on monetizing intellectual property, IP Innovations Financial Services recently scored $28 million in start-up capital from Principal Financial Group, for the purpose of guaranteeing loans secured by IP assets.

What a difference a year makes, particularly regarding structured finance. After cycling through a record wave of downgrades in 2002, the CDO market has finally begun to show some ratings stability.

As 2003 draws to a close, Citigroup Global Markets has a seemingly insurmountable lead on its competitors in the U.S. asset-backed underwriter rankings, according to preliminary numbers maintained by Thomson Financial. With $62.4 billion of ABS sold through the middle of last week, Citigroup has a rough $10 billion lead on its nearest competitor, and an 11.3% market share.

For the most part, all the talk a few years ago about securitizing terrorism risk remained just that - talk. New developments, and an indirect reference, could help these deals along.

Northwest Airlines announced that it had successfully exchanged $59.06 million of its outstanding debt due through 2006 for newly issued Class D EETC notes due April 2009. Northwest expects to have closed $64.4 million of series 2003-1 EETC as of last Friday. Under terms of the exchange, the single-B rated EETCs will pay a 10.5% coupon. Led by Morgan Stanley, Northwest initially hoped to exchange up to $551.8 million of its unsecured obligations.

Morgan Stanley recently closed an innovative repackaging of impaired-aircraft ABS notes, issued through the bank's Combination Repackaged Asset Backed Securities II shelf, or CRABS II.

Year to date as of 12/22 Term (days) 12/16 12/17 12/18 12/19 12/22 1-week

2003 2002 2001 ABS (Public and 144A) 549,296 430,235 357,322 ABS (Public and 144A excluding CDOs) 503,425 383,180 309,392 ABS (Public Only) 440,788 345,081 262,836 ABS (144A Only) 108,508 85,154 94,486 Non-Agency MBS 312,720 234,726 189,305 Agency MBS 537,862 530,600 342,562 CMBS 66,352 48,596 63,630 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 11,840.4 1 17.2 18 Credit Suisse First Boston 7,996.7 2 11.6 15 Morgan Stanley 7,181.2 3 10.4 10 Deutsche Bank AG 7,041.4 4 10.2 11 Citigroup 5,750.3 5 8.3 11 BANK ONE Corp 5,321.8 6 7.7 10 Banc of America Securities LLC 4,854.7 7 7.0 11 Barclays Capital 4,808.9 8 7.0 12 Wachovia Corp 2,978.1 9 4.3 11 Bear Stearns & Co Inc 2,856.5 10 4.1 1 Industry Total 69,059.0 - 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 Credit Suisse First Boston 6,244.3 1 13.6 17 Deutsche Bank AG 4,397.6 2 9.6 13 Wachovia Corp 4,300.1 3 9.4 17 Merrill Lynch & Co Inc 3,690.7 4 8.1 10 Citigroup 3,633.2 5 7.9 11 Goldman Sachs & Co 3,450.3 6 7.5 7 Bear Stearns & Co Inc 2,834.2 7 6.2 11 Morgan Stanley 2,582.6 8 5.6 8 JP Morgan 2,461.9 9 5.4 6 Lehman Brothers 2,417.5 10 5.3 8 Industry Total 45,870.7 - 100.0 129 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 15,170.5 1 24.0 22 BANK ONE Corp 11,756.6 2 18.6 22 JP Morgan 10,553.7 3 16.7 18 Barclays Capital 5,748.8 4 9.1 12 Banc of America Securities LLC 4,062.3 5 6.4 13 Morgan Stanley 3,954.5 6 6.2 5 Deutsche Bank AG 3,834.6 7 6.1 14 Credit Suisse First Boston 2,818.7 8 4.5 10 Lehman Brothers 2,048.1 9 3.2 7 Merrill Lynch & Co Inc 1,744.5 10 2.8 7 Industry Total 63,350.3 - 100.0 105 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 Deutsche Bank AG 2,184.6 1 27.8 7 Banc of America Securities LLC 922.7 2 11.8 2 BANK ONE Corp 900.0 3 11.5 2 JP Morgan 875.0 4 11.2 4 Barclays Capital 710.7 5* 9.1 1 Lehman Brothers 710.7 5* 9.1 1 Merrill Lynch & Co Inc 521.2 7* 6.6 2 Societe Generale 521.2 7* 6.6 2 Citigroup 500.0 9 6.4 1 Industry Total 7,846.1 - 100.0 12 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 38,491.6 1 13.2 91 Credit Suisse First Boston 26,915.5 2 9.2 64 Citigroup 26,752.0 3 9.2 68 Morgan Stanley 23,662.9 4 8.1 50 Royal Bank of Scotland Group 23,534.2 5 8.1 49 Countrywide Securities Corp 23,369.3 6 8.0 41 Bear Stearns & Co Inc 21,116.5 7 7.2 46 JP Morgan 20,559.6 8 7.0 30 Deutsche Bank AG 19,769.1 9 6.8 49 Banc of America Securities LLC 19,308.3 10 6.6 60 Industry Total 292,115.5 - 100.0 582 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 7,352.6 1 20.1 14 Morgan Stanley 5,873.6 2 16.0 11 Merrill Lynch & Co Inc 5,143.5 3 14.0 11 Credit Suisse First Boston 4,203.5 4 11.5 9 Deutsche Bank AG 3,841.8 5 10.5 7 JP Morgan 3,071.2 6 8.4 7 UBS 2,368.0 7 6.5 5 Banc of America Securities LLC 2,090.1 8 5.7 6 Lehman Brothers 956.3 9 2.6 2 BANK ONE Corp 507.6 10 1.4 1 Industry Total 36,663.0 - 100.0 37 Source: Thomson Financial

Year to date as of Dec 10 Coupon Type Market Average Life Buckets Asset Class Volume Pub/144A Fixed Rate Floating Rate Public 144A 0.0 to 0.9 1.0 to 2.9 3.0 to 5.9 6.0 to 7.9 8.0 to 11.0 Aircraft Leases 3,429 2,202 1,227 3,429 2,402 457 361 208 Auto Loans/Recs 79,778 61,318 18,460 75,534 4,244 24,112 39,688 15,718 125 113 Cash 599 249 350 599 599 Commercial Loans 311 188 123 311 311 Corp Bond/Note 5,803 1,901 3,869 5,803 3,317 874 468 1,144 Corporate Loans 8,069 606 7,426 8,069 2,124 1,206 161 2,624 1,932 Credit Card Rec 63,350 17,611 45,739 62,369 981 20,969 5,408 31,974 2,000 3,000 Equip Loans 547 547 547 177 338 32 Equip. Leases 9,128 5,167 3,960 6,684 2,443 3,230 4,743 1,080 75 Floorplan Recs 7,846 2,132 5,714 7,010 836 2,532 1,790 3,524 Franchisee Loans 728 728 728 500 109 Home Impr Loans 8 8 8 8 Junk Bonds 8,429 1,764 6,665 8,429 3,018 2,390 3,020 Leases 1,388 1,388 1,388 760 178 Loans 2,998 2,998 2,998 2,998 Mnfrd Housing Ct 714 593 121 575 139 103 186 11 359 Mutual Fund Fees 991 116 875 991 991 Non-Jumbo Mtg Ln 79,501 32,348 43,931 71,558 7,943 39,095 17,259 21,427 1,262 307 Oil Receivables 750 750 750 750 Preferred Sec 2,087 678 1,385 2,087 854 108 204 921 Prv Issued Sec 1,899 1,159 615 198 1,701 1,899 Rental Car Rec. 4,125 2,400 1,725 1,000 3,125 1,500 460 2,165 Rev Cred/Home Eq 216,940 89,161 116,586 195,563 21,377 93,366 67,482 49,224 4,577 2,064 Sm Business Loan 845 845 845 401 444 Struc Fin Credit 27,697 5,616 22,045 27,697 12,238 758 4,851 5,463 4,306 Student Loans 39,450 1,900 30,551 32,680 6,770 11,818 6,150 10,269 7,338 2,513 Tax Liens 86 86 86 86 Ticket Rec 220 10 210 220 220 Timeshare Loans 848 715 133 848 170 678 Tobacco Receives 154 154 154 154 Trade Recs 225 105 120 225 225 Unspecified/NA 667 542 125 667 667 Note: Figures are preliminary and subject to change. Data includes U.S. deals and dollar Euro 144As.Source: Thomson Financial

Rev Cred/Home Eq 38% Auto Loans/Recs 14% Non-Jumbo Mtg Ln 14% Credit Card Rec 11% Student Loans 7% Other 16%

Amid a three-deal pick up in aircraft-related activity Embraer-Empresa Brasileira de Aeronutica S.A. sold $409 million of enhanced equipment trust certificates last week, although the offering was named ExpressJet 2003-ERJ1. Backed by payments to Embraer from Continental Airlines, which in turn has subleased the aircraft to regional carrier ExpressJet Inc. The transaction came and went quickly via Citigroup Global Markets and Morgan Stanley, despite the somewhat confusing nature of the payment obligor.

The U.S. ABS primary market remained slow last week, as the market retuned from Thanksgiving to make the final stretch in what is already a record-breaking year for supply. Although the ball took a couple days to get rolling again, by mid-week there was over $8 billion marketing, with nearly $7 billion having priced.

Merrill Lynch is said to have priced the largest ABS CDO seen in the visible market, sources said.

In a rarity for the CDO market, several classes of a synthetic investment-grade CDO were placed on review for upgrade by Moody's Investors Service.