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CDOs

The CLO Deep Discount Dilemma

May 25, 2009 - In recent months, portfolio managers of cash flow CLO vehicles have been faced with the unenviable task of keeping their CLOs afloat in an environment in which bank loan prices in the global loan markets have declined to unprecedented levels. This task has become increasingly difficult, due in large part to certain provisions in the underlying CLO documentation that, in today's illiquid market, no longer operate as intended. At a time when it is more important than ever for managers to actively manage the credit risk in their CLO portfolios, CLO managers have suddenly found their hands tied by provisions that, while initially conceived to safeguard the credit quality of CLO portfolios, now serve as a disincentive for managers to replace credit impaired loans with stronger ones. This article will examine the dilemma confronting CLO managers who wish to improve their portfolios by trading rapidly deteriorating loans for better-performing so-called 'deep discount' loans.

Govts. Clutch the Reins

May 25, 2009 - Over the last year, laissez-faire has become seriously dated. Whether in the U.S., in Europe or even in some emerging markets, capital-market participants are now banking on their governments to bail them out. And as this month's ASR demonstrates, that once-maligned approach seems to be working. Although the results haven't been extraordinary, they've generated at least some equilibrium in the markets, both here and across the pond.

2009 ­The Credit Downturn Takes Its Toll on ABS

March 03, 2009 - The outlook for the securitization market in 2009 is bleak. Problems related to ABS are manifold and a recovery of the securitization market is not yet in sight. On the one hand, the future prospects of the securitization business highly depend on a stabilization of the financial industry overall. On the other hand, the credit cycle downturn will clearly test the solidity of European structured finance notes. Uncertainties related to ABS are high. An apparent example for the current market dislocation is the CLO sector - European leveraged loan CLOs are on the radar screens as undercollateralization is imminent. The European ABS market has seized up. This is mainly due to three reasons: a) the fundamental deterioration of assets, originators and investors, b) the ongoing secondary market dislocation and persisting imbalance in terms of demand and supply, which is impacting spreads and c) uncertainty related to the rapidly changing rules of the ABS game.

Govt./Private Sector Join Forces for Another Distressed Asset Cleanup

February 23, 2009 - Treasury Secretary Timothy Geithner's announcement of the revamped Financial Stability Plan proved to be a showstopper during the American Securitization Forum's (ASF) annual industry conference held earlier this month in Las Vegas. But reactions were mixed. While ABS market participants welcomed a plan that could finally bring back investors who have retreated on pricing discrepancies and the lack of regulatory framework, they did not see enough detail to restore confidence.

MBIA Spins Off Public Finance Only Insurer

February 23, 2009 - Following through on a transformation plan announced last year, MBIA last week said it has restructured its insurance subsidiaries to form a new U.S. public finance-only insurer that will operate separately from its structured finance business. Bond insurance subsidiary MBIA Insurance Corp. ceded its entire $537 billion book of public finance business to subsidiary MBIA Insurance Corp. of Illinois, which MBIA expects to rename National Public Financial Guarantee Corp. and limit to writing only U.S. public finance business. MBIA has paid MBIA Illinois approximately $2.89 billion for reinsuring the public finance business and also capitalized it with an additional $2.09 billion.

SecondMarket Opens Up Trading for CDOs and MBS

February 23, 2009 - With the onslaught of illiquid assets - particularly displaced MBS and CDO bonds - the development of a market for these securities becomes essential as well as useful not only for the companies that profit from them, but more importantly, the economy as a whole. SecondMarket, which has its roots creating markets for buying and selling restricted securities, is expanding its reach to cover the trading and analysis of MBS and CDOs, and eventually moving into whole loans, CMBS and ABS.

CLO Managers Push for Amendments

February 23, 2009 - On Feb. 4, Moody's Investors Service revised the methodology it uses to rate CLOs, spurring a rash of CLO downgrades that has yet to end. As a result, CLO managers have begun requesting amendments to their reinvestment periods to relieve the pressure, sources said. CLO managers are increasingly looking to amend their indentures so that they can access returns made from a tranche before it is downgraded, then reinvest those gains in a better-performing asset. Typically, CLO managers are barred from such action until a tranche reaches its reinvestment period. But with so many of their tranches facing downgrades, and with reinvestment periods a long way off, CLO managers have little choice other than to seek these amendments.

Middle-Market Securitizations: Trends and Outlook for 2009

February 9, 2009 - 'No matter how cynical you get, it is impossible to keep up.' -Lily Tomlin.

More Trouble for Belgium's KBC Bank

February 2, 2009 - Shares for troubled Belgian bank KBC suffered heavy losses this month amid concerns about the bank's exposure to fragile emerging markets as well as its need to raise fresh capital. At the beginning of this year, the bank said in a press release that it expected its full-year net earning to fall by E900 million ($1.2 billion). This is a result of further downgrades that Moody's Investors Service made on a range of CDOs held by the group.

CLO Managers Face Mounting Troubles

February 2, 2009 - For CLO managers, watching the declining performance of their underlying collateral has been about as much fun as a Tijuana jail. And it doesn't look like they'll make bail anytime soon. A number of issues are putting pressure on CLO mangers, the most burdensome of which, sources say, is deteriorating loan value. Deteriorating value is driving down ratings, and, adding fuel to this fire, the rating agencies have proposed changes to their CLO rating methodologies, which could push ratings down further. Meanwhile, the falling three-month Libor rate is also cutting into returns.

As Economy Worsens, Euro CLOs Hibernate

January 26, 2009 - There's little doubt among market participants that in the tainted universe of structured finance, the collateralized loan obligation has the greatest chance of survival. The CLO structure is sound and robust, they said, and CLOs are composed of straightforward assets whose origin is easy to determine. Yet, in a market where these products have to contend with forces stronger than their managers ever imagined, experts are forecasting a tough year for European CLOs-one in which the asset class overall will remain in hibernation, and some individual structures will become extinct. A serious lack of collateral, impending corporate defaults and a secondary market that for months has offered better deals than the primary are all serving to dampen the CLO market in Europe.

Dual Tranche Deals Come Out Of The CLOset

January 19, 2009 - To combat a CLO market frozen stiff by a lack of new capital, price declines, and waning confidence, some firms are working on new CLO portfolio strategies to bring in business and keep current clients interested in the loan market. Citigroup, Morgan Stanley, Natixis, JPMorgan, Prudential, Barclays and Deutsche Bank are some of the firms creating new CLO structures that have just two tranches, sources said. In this structure, one tranche is all triple-A debt and the other is equity - a nomenclature for unrated debt. These structures differ from the multi-tranche CLOs that helped balloon the securities market to more than half a trillion. Those CLOs had everything from mezzanine to triple-C tranches.

Govt. Program Not Enough to Offset TruPS CDO Losses

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.

Lack of Pricing Clarity Still Plagues ABS Market

November 17, 2008 - The ABS market suffered yet another week of frozen new issuance and paltry trading activity in the secondary market. Hopes of pricing clarity for illiquid assets were quashed when Treasury Secretary Henry Paulson made the announcement that he would not be implementing the troubled asset purchase program as previously expected. On news of the announcement, the ABX-HE-AAA 07-2 dropped to close Wednesday at 36.67, a record low for the index.

NewOak's D'Vari Calls for Govt. Guarantee

November 10, 2008 - As the U.S. government continues to unveil measures aimed at preventing foreclosures and shoring up liquidity in the capital markets, industry participants have widely expressed concern over the lack of activity in the loan modification space. Services have been handed the job, but with limitations in the pooling and servicing agreements and REMIC restrictions (see cover story), they have not been able to effectively carry out these measures.