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February 1, 2010

Past Issues

Column

The Impact of the Fed's MBS Purchases

The scheduled completion of the Federal Reserve's MBS purchase program this March has created fears that rising mortgage rates will exert renewed pressure on home prices. While the program has been successful in keeping primary rates low, it has had some unanticipated effects that will impact the housing and capital markets even after outright purchases have ended. The Fed's $1 trillion or so of net purchases last year were concentrated in 30-year conventional coupons, with FNMAs comprising roughly 57% of the total. Their conventional purchases have ranged across the coupon stack; 4s and 4.5s comprised 56% of their net buying, with the remainder concentrated in 5s and 5.5s.

ABS

Fitch: 'What Could Have Been' Not So Bad for U.S. Credit Card ABS

The credit card ABS sector was reshaped in 2009 by a confluence of credit, funding, legislative, regulatory, and accounting challenges.Consumer credit quality deteriorated throughout the year, driven by a prolonged and severe economic downturn, rising unemployment and a lack of credit availability for consumers. As a result, Fitch's chargeoffs and 60+day delinquency indexes reached record highs during the year and remain elevated. From a funding perspective, the launch of TALF helped alleviate some challenges and coaxed the return of traditional investors to senior tranches. Also, pending implementation of SFAS 166 and 167 cast uncertainty over the economics of funding through the ABS markets going forward and called into question the Federal Deposit Insurance Corp.'s treatment of bank sponsored securitizations in the event of conservatorship or receivership for a short while. On other fronts, the U.S. Congress swiftly enacted legislation aimed at curtailing the use of certain risk based pricing practices.

Student Loan ABS Issuance Hinges on Two Bills

The student loan ABS (SLABS) market's biggest challenges today are bubbling on Capitol Hill, where legislation that would shrink it has been thrown into limbo along with the healthcare bill, threatening the availability of student loans unless an emergency funding program is extended. Short the 60 votes necessary to avoid a filibuster, the U.S. Senate version of the Student Aid and Fiscal Responsibility Act (SAFRA) has been slated to become part of the 2010 budget reconciliation bill since the House of Representatives passed its version last September. That version would eliminate the Federal Family Education Loan Program (FFELP), in which the federal government guarantees loans provided by private lenders such as Sallie Mae and the National Education Loan Network (Nelnet), and replace it with loans provided directly by the federal government.

A New Level of Transparency: Consumer Credit Migration in the Capital Markets

One of the positive outcomes of the recent credit crisis is that it has changed the commonly accepted standards for transparency. Structured finance marketplace participants are recognizing the need for fundamental changes. These changes will improve asset-level transparency and allow for proper assessment of the risk versus return tradeoff of investing in mortgage pools or credit-enhanced mortgage securities.

Recent market dislocations and the drastic reorganization of resources have led to enhanced research and development efforts around transparency and how to bring it to the market. The results are evident now in the form of updated analytical infrastructures.

Regulatory Reprieve

It's fitting that the ASF conference is being held in Washington, D.C. Uncle Sam, after all, has been playing a crucial role as securitization's savior as well as working double time to alleviate the problems plaguing the mortgage market. The Treasury Department has led the way, as Nora Colomer reports in this month's cover story, by increasing the capital available to Fannie Mae and Freddie Mac. Giving the GSEs more leeway to increase their mortgage holdings enables them to buyout more delinquent loans without selling MBS, thus alleviating supply pressure in the mortgage market.

The Morning After: Making The Case for Persistent Loan Level Analyses

You've booked the trade/priced the policy/granted the rating/set the reserves. So, the analytical heavy lifting is done, right? Not quite. Most major non-agency mortgage market participants would agree that some degree of loan level analysis has become the norm. Traditionally, most (if not all) granular analyses were completed pre-trade during price/rating/reserve discovery. After the transaction closed, many market participants were content to employ risk and surveillance systems that primarily consisted of periodic, canned, batch report distribution. As HPI hummed along at an annual 8% to 10% per annum clip, no one paid much attention to these monthly distribution list mailings, and many institutions unwittingly slipped into the role of passive portfolio observer while the risk profiles of their exposures evolved over time...often with disastrous results.

Middle-Market Securitizations: Trends and Outlook for 2010

"There are snakes that go months without eating. And then they finally catch something, but they're so hungry that they suffocate while they're eating. One opportunity at a time." - Don Draper, Mad Men The year 2009 was a year of mixed signals-on one hand, revised assumptions by rating agencies such as Moody's Investors Service and Fitch Ratings led to a series of downgrades. Fitch also cited concern that rising default levels, lower recoveries and refinancing risk may indicate even more downgrades in the future. On the other hand, trading prices for CLO notes made a dramatic rebound in the first half of 2009, and the first middle-market (MM) CLO of the year priced in December (NewStar Commercial Loan Trust, 2009-I). In addition, new warehouse-type securitizations have begun to emerge, with Ares Capital Corp. and Fifth Street Finance Corp. announcing deals with Wells Fargo in 2009.

Floorplan ABS Gain Ground

Despite troubles in the auto sector, dealer floorplan ABS have gained ground. Just last week Nissan Motor Acceptance Corp. came to market with its $750 million dealer floorplan offering. And for the January 2010 TALF subscription period, only Ford Motor Credit Co.'s floorplan deal was included. Another floorplan deal came down the pike in January - Morgan Stanley Resecuritization Trust 2010-F. Aside from the obvious rise of deal volume in the sector, rating agencies have also made revisions to their existing criteria to include the manufacturer's risk as it relates to the dealership networks. At the end of last year, Fitch Ratings published its revised criteria on dealer floorplan ABS deals. The new approach classifies the dealer floorplan platform into two systemic risk categories. Category A consists of relatively low-systemic-risk platforms that generally have high product and manufacturer diversification.

Global

LatAm 2010: Better Days Ahead

Latin American ABS and MBS held on last year thanks to domestic markets. As cross-border demand receded further, local investors remained a major force. This, in part, explains why activity from the region fared so much better than the emerging markets on the periphery of Europe. Where the cross-border buy side was either in retreat or too demanding and domestic markets were undeveloped - e.g. Turkey and the CIS - activity crumbled.

European PlayersRekindle Primary Pipeline

The European ABS market "shot out of the blocks" in early January with significant spread tightening in both "on-" and "off-the-run" names and across senior and subordinate bond classes at the same time. The late 2009 revival of primary issuance continues to hold pace with several new deals marketing in January.

Small Hopes that Turkey Returns

ABS devotees involved in the emerging markets east of Europe faced headache after headache last year. At least one major problem morphed into a positive during the year, as the orderly winding down of major Kazakh programs backed by diversified payment rights (DPRs) in the face of their originators' restructuring proved a vindication of the asset class. A smaller program by Alliance is in the process of amortization, while the bank has defaulted on other debt.

Petrobras Funds Expansion Via Suppliers

Brazil's Petrobras popped up on the ABS radar last year when a domestic deal came out that was backed by contracts between the oil giant and its suppliers. A receivable investment fund (FIDC), the transaction features senior shares rated 'AA(bra)' by Fitch Ratings and HSBC as the administrator. The deal is designed to facilitate the funding of small projects and services. A typical candidate would be a supplier that needs financing to assemble a machine for Petrobras. Having a big name like Petrobras as an obligor is partly the point of the deal, although a degree of operational risk for the projects in question means that the creditworthiness of the transaction is weaker than Petrobras' risk.

ABS Totals

ABS Totals

View year-to-date 2010 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.