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November 24, 2008 - The dramatic reversal of fortune for commodity exporters, induced by a plunge in prices and the global liquidity crunch, has altered the terms of financing for a sector that benefited handsomely from the market trends of the last several years. The question is whether they've altered enough to revive the export-backed deals that were a viable funding option before easy money and sky-high prices made them obsolete. While in the near term such a change seems unlikely, the conditions next year will arguably be more auspicious for this sector of ABS than they have been since 2004. 'We've been talking to a lot of investors about what they'd like to see when the markets come back,' said Reggie de Villiers, head of Latin American securitization at Merrill Lynch. 'One thing we've heard is secured export notes.'
November 24, 2008 - The European Commission (EC) disclosed its proposal for regulating credit rating agencies, following calls for regulatory oversight of these companies. The regulations aim to impose rules that address four main areas: conflicts of interest, quality of the ratings and methodology, transparency, and consistent regulations among European Union (EU) countries.
November 24, 2008 - Moody's Investors Service's recent lowering of Ambac and MBIAs' ratings to 'Baa1' spurred a massive flow of downgrades. The European CMBS sector has been especially hard hit. It saw downgrades from all three rating agencies over the past week.
November 24, 2008 - Bank of America Corp.'s plan to modify 400,000 mortgages is proving to be more complicated than expected - and not only because there are third-party investors involved. The Charlotte company's deal with the attorneys general of 15 states to settle allegations of predatory lending by its Countrywide Financial Corp. did not address what should be done when a borrower has a second mortgage.
November 24, 2008 - The Securities and Exchange Commission (SEC) last Wednesday delayed a resolution on adopting rules that related to the regulation of credit rating agencies. The Commission will return to the issue on Dec. 3. Back in October 2006, President George W. Bush signed the Credit Rating Agency Reform Act of 2006 (CRARA) into law. This made substantial changes intended to revamp the rating agency business model. The law puts the SEC in charge of issuing rules regarding registered credit rating agencies' conflicts of interest and the misuse of public information.
November 24, 2008 - The President and CEO of the National Association of Student Financial Aid Administrators (NASFAA) Philip Day wrote Margaret Spellings, U.S. Department of Education (ED) secretary, and Henry Paulson, head of the Department of the Treasury, last week. In his letter, Day welcomed the recent government announcement that suggested a change in the focus of the Troubled Asset Relief Program (TARP) to assist FFELP student loan issuers. However, he urged Spelling and Paulson to take similar 'effective actions' to ensure credit financing is available for those private education loan borrowers that need funding to pay postsecondary education expenses.
November 24, 2008 - In a down market, only the fittest survive. With financial guarantors facing downgrades and insolvency, Assured Guaranty is pooling its resources with the only other triple-A rated monoline, Financial Security Assurance (FSA). This is an acquisition that Assured hopes will bring strength in size. 'In this environment, bigger is better,' said Sabra Purtill, managing director of global communications and investor relations for Assured. 'Our core business is providing certainty to investors; we provide them with a guarantee. And it is clear in our minds, that to be a reliable provider of insurance in this market and going forward, you need to have big, stable, unquestionable balance sheet strength.'
November 24, 2008 - Weak economic conditions have put capital strains on trust preferred securities (TruPS) issuers, causing a rise in payment deferrals and defaults within pools of these assets, TruPS CDOs. Despite the government's promise of liquidity via the Troubled Asset Relief Program (TARP), market participants are not convinced that helping the banks will be enough to offset losses in these pools.
November 24, 2008 - With November fast approaching December and the end of 2008, ABS market participants have all but written off new issuance activity until at least January. While secondary market activity remains robust, with bid lists from every ABS sector coming in a flood, half the deals being shopped around in the secondary won't find bidders, according to one ABS trader. Mostly, market participants are trying to test different spread levels, he said.
November 24, 2008 - Even in the current Era of Large Numbers, the third quarter 'earnings' reports for Fannie Mae and Freddie Mac were shockingly bad. The two firms combined have lost a total of $54.2 billion dollars. The bulk of the losses ($17 billion for Fannie alone) were attributable to writing-off deferred tax assets, but the GSEs also reported huge increases in 'credit-related expenses.'
November 17, 2008 - With economic conditions worsening, the U.S. government has stepped up its bailout efforts - doling out $250 billion allotted under the Emergency Economic Stabilization Act (EESA) for equity investments in financial institutions. U.S. Treasury Secretary Henry Paulson last week formally shelved the government's plan to use the Troubled Assets Relief Program (TARP), which is part of the $700 billion EESA, to buy troubled assets from banks. Instead, the Treasury has chosen the equity stake route for financial institutions and will focus more on the consumer, attempting to increase the availability of student loans, credit cards and auto loans. It will also encourage private sector involvement by potentially matching private capital with government investments.
November 17, 2008 - The new Spanish government fund Fondo de Adquisicion de Activos Financieros (FAAF) will start operations this week. The fund is intended to strengthen domestic bank liquidity through asset purchases, with Cedulas or Spanish covered bonds playing the leading role. 'FAAF is intended to strengthen the liquidity of Spanish financial institutions through asset purchases, in order to stabilize the supply of credit to the private sector and to Spanish companies, which [have been] hard hit by the economic downturn,' Dresdner Kleinwort analysts said. 'It is not a refuge for nonperforming securities, however, but only accepts highly rated papers. Cedulas will play the leading role in this respect.'
November 17, 2008 - The Spanish government announced the launch of a mortgage deferral measure to aid unemployed, old-age pensioners and self-employed borrowers struggling to pay their mortgages. Although the move could potentially bailout a significant number of struggling homeowners, there could be a potential downside for existing Spanish RMBS deals. 'If we assume that the reported government estimates of 500,000 borrowers end up using the scheme and they all defer the maximum >500 ($625) a month from day one, the total guaranteed deferred payments would amount to >6 billion or some 2.2% of Spanish GDP over two years,' Deutsche Bank analysts said.
November 17, 2008 - Aggressive rate cuts over the past week - the Bank of England's (BofE) 150 basis points easing along with the European Central Bank's 50 basis points cut - are likely to improve loan affordability in existing household credit. However, the cuts might not be enough to curb the downward cycle in highly levered European housing markets, experts said.
November 17, 2008 - The automotive sector was in the spotlight last week. House Speaker Nancy Pelosi called for an emergency and limited financial assistance package for the beleaguered industry. President-elect Barack Obama also asked for immediate help for the automobile companies. The calls for assistance came amidst negative corporate news regarding the Big Three U.S. automakers.
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