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March 30, 2009

Past Issues

Column

Proposed FASB Changes

The release of the Treasury's plan for public-private investment funds (PPIFs) has received substantial attention and triggered a huge rally in financial stocks. However, the proposed changes in accounting rules by the Financial Accounting Standards Board (FASB) may have a more significant and lasting impact on the financial system. While they risk making financial statements even more opaque, the accounting changes, if approved, should serve to limit the debilitating cycles of write-downs and capital depletions that continue to plague the financial sector. The first proposal (a modification of FAS 157) allows firms to determine whether a market price is 'associated with a distressed transaction' for valuation purposes. If the subject transaction is judged to be distressed, the institution can use alternative valuation methodologies to either adjust the quoted price of the security or, in some cases, ignore the market price entirely.

ABS

FASB Proposes Fair Value Flexibility with Operational Punch

Recent proposals by the Financial Accounting Standards Board (FASB) give holders of illiquid assets more flexibility in disclosing their fair values but also establish stricter guidelines for how to achieve those values, likely resulting in greater operational burdens and a step back on the road toward fair value accounting. Technically FASB staff positions (FSPs), one proposal would affect disclosures by amending two existing accounting statements and an Emerging Issues Task Force (EITF) issue. Only credit-related losses would be reported in earnings, while losses related to other factors would appear in other comprehensive income.

TALF Spurs ABS Issuance, Although Legislative Risk Looms

The month of March saw ABS activity spurred by the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). Issuers Ford Motor Credit Co., Nissan Motor Acceptance Corp. and Huntington National Bank came to market with TALF-eligible auto deals while Citigroup also jumped on the TALF bandwagon with a credit card offering, Citibank Card Issuance Trust 2009-A1. The once moribund new issuance market came alive again, with securitization market players hopeful that these deals signal that TALF has accomplished what the government was hoping for, which is to help the plight of the credit markets, consumers and small businesses by facilitating ABS issuance.

Treasury Details Program to Buy Toxic Assets

Last week, the U.S. Department of the Treasury released the details regarding its Public-Private Investment Program (PPIP). Through the PPIP, the government hopes to free up bank balance sheets and make credit more available to households and businesses.

MBS

What's Ahead for MBS Supply, Demand, Prepays?

The month of March started with President Barack Obama's Homeowner Affordability and Stability Plan underway. The expectation is that it will help between seven and nine million families restructure or refinance their loans to avoid foreclosure. Of that total, four to five million people would be helped through refinancing via the GSEs of their existing FNMA or FHLMC Gold mortgages to lower rates, resulting in lower monthly payments, and the other three to four million at-risk (i.e., subprime) homeowners would have their loans modified in some way that allows for affordable monthly payments with various incentives to the servicer to pursue a modification and to the borrower to keep their loan current.

CMBS Market Braces for Rising Short-Term Maturities

As deteriorating economic conditions continue to weigh heavily on the U.S., no sector of the real estate market remains intact, including the formerly healthy commercial mortgage-backed market. With short-term CMBS loans approaching their maturities, and an illiquid market for refinancing, market participants are fearful of mounting term defaults.

Global

Kazkommertsbank Launches Tender for DPR Bonds

On March 23, Kazkommertsbank (KKB) launched a tender offer of up to $175 million for seven tranches of the originator's paper backed by diversified payment rights (see table). The tender expires March 31 and sets a floor of $820 and a ceiling of $920 for each $1,000 in notes.

European CMBS: A Landscape Readying for More Defaults

Although refinancing risk for European CMBS deals is expected in another couple of years, market sources said that a more immediate concern for bondholders is the alarming rate of tenant defaults. James Zanesi, an analyst at Unicredit, said that in 2009 the bank has monitored 47 downgrades in U.K. CMBS and 15 downgrades in other European deals (versus only two upgrades in Victoria Funding (EMC III) Plc).

U.K. Whole Business Deals in a Pinch

The U.K. pub sector faces further constraints as turnover and profit margins are expected to drive the declining industry trend. Market analysts said it is likely that whole business deals tied to this sector will see performance suffer as a result. The deteriorating economic outlook, harsh pub trading environment and declining financial performance have contributed to negative rating actions.

Euro ABS Structural Features Surprise Investors

Barclays Capital analysts have found that structural 'surprises' in securitized deals found over the past several years have highlighted inefficiencies within transactions. In a report published last month, analysts said that structures sometimes work differently from investor perception and, in some cases, exhibit inherent problems within the structures. More of such surprises are expected to emerge as these structures continue to be tested.

European Players Shy Away From Covered Bonds

The European covered bond market has taken some steps forward despite the economic environment. The pipeline has seen fresh issuance while new markets have opened supported by new legislation. Despite these inroads, the sector finds itself on shaky ground, a factor that could rattle investor confidence. The security offered by covered bonds even in the most developed markets, such as the German Pfandbrief sector, has disappeared.

U.K. Govt. Offers a Helping Hand, Hoping to Lead to More Lending

The U.K. government plans to implement its Asset Protection Scheme by April 2009. However, it has yet to unveil the scheme's full details. Nonetheless, market players are hoping that this step will lead to a more stabilized banking system and better spreads for securitizations.

Bank of Russia's Repo Window Beckons RMBS But better opportunities may lie elsewhere

When the European Central Bank (ECB) upped its threshold for repo-eligible ABS to triple-A beginning in March, this funding alternative shut down for emerging market securitizations, which could hit that rating only with a level of enhancement that is unavailable in today's environment. Given that erstwhile ABS investors still refuse to open their wallets, ECB funding through the repo window remains one of the only viable avenues for banking originators to raise capital.

ABS Totals

ABS Totals

View the year-to-date ABS issuance totals for ABS, MBS and CMBS.

ABS Manager Rankings

ABS Manager Rankings

View the year-to-date manager rankings for the different ABS sectors, including real estate, credit cards and autos.

Scorecards

Scorecards

View the Scorecard deals featured in ASR's latest issue.

Mortgage Refi Data

Mortgage Refi Data

See results from the Mortgage Banker's Associations Refinance and Purchase Indexes as well as the weekly mortgage rates surveyed by Freddie Mac.