http://www.abalert.com Asset-Backed Alert en-us Copyright 2000-2007 Harrison Scott Publications. All Rights Reserved. Fri, 03 Feb 2012 23:22:44 -0700 60 http://www.abalert.com/headlines.php?hid=155710 Secondary-market investors are bidding up a narrow class of collateralized loan obligation paper in hopes of locking in outsized returns. The activity centers around the equity portions of CLOs issued from 2005 to 2007 that still are in their reinvestment periods. The securities have been in demand for some time, but reached a milestone in recent weeks when some began trading above par. The reason: The coupons on the deals senior and mezzanine tranches initially were set to reflect smaller loan yields that prevailed at the time. That means managers who buy assets at todays higher returns stand to create added profits that flow to equity holders. CLO equity fitting the description has become increasingly scarce. Thats partly because investors are sitting on their positions, and because deals are exiting their reinvestment phases as they age. According to Samp;P, 88 CLOs ended their reinvestment periods last year. http://www.abalert.com/headlines.php?hid=155551 A shift in funding expenses could prompt American Express and Discover to increase their output of credit-card bonds this year. The expectations hinge on an increase in what the companies pay to raise capital by issuing certificates of deposits, coupled with a decrease in securitization costs. According to Moodys, those expenses are now roughly equal for banks without retail branches that is, institutions like Amex and Discover that dont keep deposits in traditional savings accounts. The upshot is that those operations are likely to select fresh securitizations to re-fund a greater proportion of outstanding card bonds as they come due. In 2011, Amex rolled 41 of its maturing card bonds into new deals. Discover took the same step for 74 of its obligations. Even if they remained at those percentages, Amex and Discover would produce more credit-card bonds this year. Thats because both companies face an increase of roughly 25 in the total dollar volume of card paper they have coming due in 2012 Amex to $7.1 billion and Discover to $5.4 billion. American Express sold $2.3 billion of credit-card bonds last year, up from $1 billion in 2010. Discover kicked in $3.2 billion of fresh offerings, up from $1.4 billion. Like other issuers, both lenders were more active before the 2010 implementation of the Financial Accounting Standards Boards FAS 166 and 167 rules eliminated off-balance-sheet treatment for banks securitized assets. Without that benefit, banks found it more cost effective to tap into growing... http://www.abalert.com/headlines.php?hid=155485 PrinceRidge Group is expanding its mortgage-bond brokerage desk. The New York firm aims to hire 30 traders and sales professionals for the effort, which would double the number of staffers it currently has assigned to home-loan securities. Leading the buildup is Barry Berkeley, a longtime player in the bond market who arrived Jan. 3 as head of the division. Berkeley, who most recently headed the institutional fixed-income division at brokerage firm Sterne Agee amp; Leach, is focusing initially on interviewing potential recruits. PrinceRidge apparently has promised him the capital needed to bring in five traders in New York and 25 sales specialists who would be stationed in offices across the U.S. including New York, Chicago and Los Angeles. Berkeley already has filled several of the positions. One of the hires is characterized as a well-known trader. The others are sales professionals. Theyll start Feb. 1. From there, Berkeley hopes to build up his staff as quickly as possible. He has been fielding inquiries from a growing field of candidates that include former colleagues and market players who recently were displaced in layoffs at banks such as Credit Suisse and Morgan Stanley. People know Im here and building up a division, while at the same time theres been a lot of disruption out there in the workforce, Berkeley said. This is a unique opportunity and a great time to build and get great people. PrinceRidges pursuit of a larger presence as a mortgage-bond trader reflects a desire by the firm to re-focus... http://www.abalert.com/headlines.php?hid=155286 Mayer Brown squeaked by Bingham McCutchen as the securitization industrys most active issuer counsel last year, though Bingham retained its title as top underwriter counsel. Among law firms seeking underwriting assignments, Bingham handled 45 new asset- and mortgage-backed bond offerings in 2011, well ahead of number-two Sidley Austins tally of 39 transactions, according to Asset-Backed Alerts ABS Database. Mayer finished third with 35 deals. Mayer also served as issuer counsel on 35 structured-product transactions just one more than Binghams count of 34 deals. But that was enough to deprive Bingham of its 2010 bragging rights as both top underwriter and issuer counsel. Orrick Herrington finished third in issuer assignments in 2011, with 19 deals. Bingham leapt to the top of the law-firm league tables in 2010 thanks to its 2009 purchase of former market leader McKee Nelson. Last year, the firm experienced a sharp drop both in the number of deals it handled and the dollar volume of those transactions in part because of stronger competition from the likes of Mayer and Sidley, but mostly because of an overall drop in the volume of structured products last year. In 2010, Binghams underwriter-counsel assignments encompassed deals with a combined face value of $38.2 billion, versus just $28.4 billion last year. Industry-wide, the number of deals fell to 307 in 2011 from 380 the year before, as the total dollar volume sank to $178.7 billion from $203.4 billion. On the issuer-counsel side, however, Mayer saw... http://www.abalert.com/headlines.php?hid=155189 BlackRock is assembling a novel fund with a prominent securitization component. The yet-to-be-named vehicle is the brainchild of Dik Blewitt, a structured-finance specialist who recently set aside all other responsibilities to focus full-time on the effort. Hes envisioning an equity pool of more than $1 billion, and is planning to use only minimal leverage. BlackRock plans to launch the fund in February with $150 million to $200 million of seed capital. That money would come from the firm itself and from large investment banks. The rest would be raised from outside limited partners, including institutional and individual investors, beginning later in the first quarter. The fund would employ a two-pronged investment strategy. The banks that sign on as partners would play an especially active role in the vehicles first component, which is aimed at helping the institutions unload positions in mezzanine structured products that have become more costly to retain amid rising capital-reserve requirements in the U.S. and Europe. BlackRocks function on that end would largely be to offer leverage to prospective buyers that so far have been hesitant to meet banks asking prices for the holdings. The idea is that with the ability to purchase on margin, the investors would be willing to pay more giving the banks an incentive to back the effort. BlackRock would offer financing against a range of securitized products, including collateralized debt obligations, residential mortgage bonds, commercial MBS and deals backed... http://www.abalert.com/headlines.php?hid=155097 A new brokerage firm is taking shape in London, with an eye toward structured-product and whole-loan trades. The operation, Pepper Capital, is the brainchild of Jonathan Laredo a longtime securitization specialist best known as the founder of now-defunct collateralized debt obligation issuer Solent Capital. He filed papers Nov. 24 notifying the U.K. Financial Services Authority of Peppers launch. Although the nature of the affiliation remains unclear, Peppers name is known to reflect ties to Sydney mortgage-bond issuer Pepper Homeloans. The two sides now appear to be finalizing an agreement under which Laredo would aid Pepper Homeloans in distributing securitizations to investors worldwide and would act on the companys behalf to broker purchases and sales of whole-loan portfolios in Europe. Presumably, Pepper Capital would seek similar work from other clients. It also aims to aid customers in capital-raising efforts, with a focus on small and mid-size companies. As for Pepper Homeloans, the company already is known for writing subprime loans at home and in the U.K. It also has been seeking to expand its presence as a prime lender, following the purchase of a $5 billion book of mortgages in Australia and New Zealand from GE Capital in August. The relationship with Laredo, meanwhile, reflects efforts by the company to extend its reach in Europe. Laredo was joined in October by Mark Atmore, a marketing specialist who spent the previous two years raising money for the brokerage and hedge... http://www.abalert.com/headlines.php?hid=154936 Pimco wants to buy a stake in a subprime auto lender. The investment, totaling as much as $50 million, would come via the Newport Beach, Calif., bond specialists Pimco Bravo Fund. Sources said the shop is focusing its acquisition efforts on lenders that fund themselves through securitization or are planning to do so with some pointing to Consumer Portfolio Services as a possible target. While theres no official word on whether the two companies are in talks, the chatter is that CPS would use the injection to aid in an ongoing expansion of its lending operations. CPS would be a good candidate in that they could use the investment to purchase or originate loans to securitize, one source said. Market players also point to ties that CPS may have forged with Bravo Fund chief Bryan Sullivan during his days at Goldman Sachs, where he worked prior to arriving at Pimco in June. Indeed, Sullivan focused on investments in lending operations as head of a special-situations team at Goldman, which supplies a $100 million warehouse line to CPS. As for the Pimco fund, the $2.4 billion vehicle aims mainly to buy distressed home-loan instruments, commercial mortgage debt and banking operations in part to exploit increased capital-reserve requirements under the Dodd-Frank Act. But the vehicle, whose name stands for bank recapitalization and value opportunities, gained flexibility when Pimco parent Allianz approved a restructuring in August that broadened the bond giants... http://www.abalert.com/headlines.php?hid=154776 Benita Levy, a longtime securitization specialist who co-headed MF Globals Chicago office, has resurfaced at Mesirow Financial. Levy arrived at Mesirow on Nov. 21 as a managing director on the Chicago broker-dealers institutional sales-and-trading desk, with a focus on asset-backed securities, residential and commercial mortgage bonds, collateralized debt obligations and U.S. Treasury securities. Market players say her hiring particularly promises to boost the shops securitization business, where it recently has been adding personnel to a team established in the aftermath of the market crash. Hiring Benita is really going to put these guys on the map in the structured-product space, a trader at a rival broker-dealer said. Levys move comes amid the dispersion of MF Globals staff across the financial marketplace, following the brokerages dramatic collapse on Oct. 31. However, she is the first person from the firm with high-profile securitization expertise to land a new job. Others, including Philip Hermann and Evan Malik who co-headed asset- and mortgage-backed securities sales and trading in New York are in talks with prospective employers. Levy had only joined MF in June, coming over from FTN Financial to lead the companys 600-person Chicago outpost alongside John Brady. Her primary tasks included overseeing an effort by the shop to build on its presence as a futures and options broker by expanding its structured-product sales-and-trading business. Levy started her career in... http://www.abalert.com/headlines.php?hid=154668 A firm that formed in 2009 to manage Barclays devalued credit-product holdings is trying to figure out what to do with its home-loan servicing business. C12 Capital has looked into a number of options for its DHM Mortgage Servicing unit in the last few weeks, including buying a whole-loan investment shop that could feed new business to the operation. But when that idea proved too costly and complex, C12 shifted its focus to selling a stake in the business. The search for a partner is led by C12 executive Darryl Herrick. His targets have included shops that specialize in buying and rehabilitating nonperforming mortgages, often with securitization as an exit strategy. Along with DHMs operations, the new partner would take on principal James Dooley and a few other staffers. Indications are that C12 would retain an interest in DHM under the arrangement, with the new backer likely managing the servicer. DHM formed in 2010, largely to service whole loans in the Barclays book. C12s search for a partner in part reflects a desire to determine a direction for DHM before its current $1.1 billion servicing portfolio runs off in about five years. Meanwhile, the idea of channeling business to DHM through the acquisition of a loan buyer didnt fly in part because C12 expects whole-loan trading volume to dwindle. Before DHM formed, Dooley oversaw contracts with outside servicers that C12 hired to work on its loans. But he still was performing the bulk of C12s servicing-related due-diligence work, leading the shop to conclude that it... http://www.abalert.com/headlines.php?hid=154648 The Association for Financial Markets in Europe and the European Financial Services Round Table are entering the final stages of an effort to develop a quality label for securitizations. The latest phase of the project, set to begin in the coming weeks, entails polling issuers on their willingness to fund an operation that would grant the designation a sort of stamp of approval verifying that deals meet minimum levels of transparency and basic health. The thought is that the feedback will serve as a key measure of support for the undertaking. The initial sense is that there will be enough backing to move ahead. In fact, the Association for Financial Markets and European Financial Services Round Table could approve a measure to implement the labels this month meaning they could appear on deals in early 2012. The polling will be handled by leaders of a working group. Its unclear how much money theyre asking issuers to kick in, but it would have to be enough to hire a secretariat and several staffers who would review deals. A new office also would be needed. That said, there still are many details to be finalized. For example, issuers would have to offer more details about the loans backing their transactions. But its unclear how those disclosures would mesh with ones under development by government regulators. For now, the two trade groups favor the term prime collateralized securities for deals that meet the quality standards. The groups and central-bank officials in Europe have been discuss... http://www.abalert.com/headlines.php?hid=154416 Fixed-income fund operator Mariner Investment is about to launch a vehicle focused on mortgage-backed securities, replicating a strategy that has generated double-digit returns for the firms multi-strategy hedge funds. Mariner MBS Arbitrage Fund will be led by mortgage-bond traders Matt Schulman and Greg Schwab, who currently manage about 20 of the assets in the $11.7 billion firms flagship vehicles, Mariner Partners and Mariner Atlantic. Their portfolio gained 95.8 in 2009 and 18.1 in 2010, and was up 15.7 this year as of Sept. 30. The new MBS fund is set to begin trading this month. Schulman, who joined Mariner in 2007 from Truman Capital, and Schwab, who arrived in 2005 from Bear Stearns, buy mortgage bonds whose values have been depressed by investor fears about credit quality, prepayment risk and lax underwriting standards. Their strategy is to hold on to the securities until market sentiments turn favorable, then sell the investments opportunistically. Marketing documents for their planned fund say the managers continue to be bullish on the mortgage-backed securities market. One reason for their optimism: A large number of homeowners with mortgage balances exceeding home values, combined with more stringent underwriting standards, has put a lid on refinancings which, in turn, has lowered prepayment risk. And while mortgage-bond prices are well above their financial-crisis lows, there are still plenty of bargains to be found. Deeply discounted senior secured bonds... http://www.abalert.com/headlines.php?hid=154303 It is becoming a lot more expensive for U.S. lenders to fund their operations via commercial-paper conduits run by big French banks. Overnight paper issued by the U.S. conduits of BNP Paribas, Calyon, Natixis and Societe Generale is going out the door at 55-60 bp over three-month Libor. Including fees charged by the banks, the total funding cost for a conduit customer is now about 110 bp of the amount raised. By comparison, overnight notes from a top U.S. issuer such as J.P. Morgan are selling at spreads of 10-15 bp, for a total funding cost of about 60 bp. Around midyear, French banks were paying about the same amount as their counterparts in the States. Spreads gradually widened from there, but didnt start blowing out dramatically until a few weeks ago. The sharp rise in spreads among the French conduits reflects weakening demand due to investor fears about exposures to troubled sovereign debt in Europe, in the latest example of how the nations banks are feeling the effects of the regions fiscal crisis. Money-market funds that reliably snapped up the vehicles in the past have stopped buying in recent weeks. Indeed, at this point, BNP, Calyon, Natixis and SocGen are having difficulty selling anything but overnight notes. The French conduits are just getting battered, one market player said. With European leaders reaching a tentative deal to solve the debt crisis on Oct. 27, French bankers have reason to hope that investors will soon re-embrace their conduits. Were the sovereign-debt uncertainty to... http://www.abalert.com/headlines.php?hid=154282 A government proposal that calls for Fannie Mae and Freddie Mac to add unguaranteed subordinate classes to their mortgage-bond issues could spawn yet another new product: resecuritizations of the junior securities. The outlook reflects plans by mortgage REITs to become major investors in the subordinate agency paper. While the concept is still in its infancy, it appears those shops would fund their initial purchases with capital already raised via stock offerings and other means, with an eye toward securitizing the holdings down the road. A number of mortgage REITs already have been eyeing a similar approach to funding investments in pools of loans and non-agency mortgage bonds, but have been stymied by a lack of supply among those products. Investments in traditional agency debt, meanwhile, dont carry high-enough yields to support resecuritization as a profitable exit strategy. But agency B-pieces would appear to address both limitations. The securities would be plentiful, based on initial projections that they would account for up to 10 of each Fannie and Freddie issue going forward. And because they would represent first-loss positions without a government guarantee, they would bring higher returns than existing agency debt. According to Sifma, $540 billion of agency bonds priced during the first three quarters of this year. However, a resecuritization strategy would have to overcome a number of obstacles. For starters, the government hasnt said much about the structure of the agency... http://www.abalert.com/headlines.php?hid=154051 The American Securitization Forum is compiling a list of changes it wants to see in the newly drafted Volcker Rule. But spelling out those revisions promises to be no easy task, as the trade group still hasnt figured out precisely how the proposed regulation would affect the structured-finance industry. This much is certain: As written, the directive would make it harder for banks to operate commercial-paper conduits and would conflict with other regulations for term deals. The FDIC, Federal Reserve and SEC released an initial version of the Volcker Rule on Oct. 11. The ASF has already completed an initial review of the 298-page document, and has assigned staffers to begin drafting a response. Those individuals also are approaching ASF members for feedback, in a departure from the trade groups usual practice of waiting for their comments to arrive. Likewise, the group has scheduled a seminar for Nov. 16 in New York to discuss the rule and collect opinions from its constituents. Why the urgency From what we understand thus far, the effect on securitization is significant. But its the most complicated banking regulation ever contemplated and the securitization implications are laced throughout the entire document, ASF executive director Tom Deutsch said. The SEC has set a Jan. 13 deadline for comments. We need every one of those 90 days to understand the potential implications and try to address them, Deutsch said. The Volcker Rule, so named because it was conceived by former Fed chairman Paul Volcker, is aimed... http://www.abalert.com/headlines.php?hid=154029 Goldman Sachs is trying to convince the National Hockey Leagues New Jersey Devils to securitize future revenues from the teams television broadcasting contracts. Goldman approached Devils officials this week, pitching a deal that would raise $75 million to $100 million. The team is considering the proposal. A Devils offering might hinge on plans by 47 owner Jeff Vanderbeek to buy out a similarly sized stake held by Ray Chambers. Amid ongoing financial struggles for the franchise, Chambers and other partners have balked at recent spending proposals. But Vanderbeek wants to pursue a series of projects, including adding high-end restaurants to the teams home arena in Newark and constructing a nearby hotel. A bond sale might help raise the money to finance those initiatives, which presumably would remain stalled with Chambers in the picture. Vanderbeek, a former Lehman Brothers executive who took control of the Devils in 2004, is close to finalizing a deal with Chambers that would be complete by yearend. Chambers apparently would pay off lenders including CIT Group as part of the arrangement. Devils games are aired on the MSG television network. A securitization by the team would likely resemble prior offerings by other professional sports franchises and leagues. In fact, the NHL looked into a deal backed by broadcasting revenues a few years ago as did the National Football League. A $475 million securitization that Major League Baseball completed in 2003 was backed by a broader mix of cashflows.... http://www.abalert.com/headlines.php?hid=153898 Look for automakers to structure some of their upcoming deals with large amounts of floating-rate paper. Historically, all but the shortest-dated bonds backed by auto loans and leases have carried fixed interest rates, in part because the underlying credits are generally fixed-rate. The idea of adding more floating-rate components is to entice buysiders who normally would invest in floaters backed by credit cards or home-equity loans, but have been frustrated by a lack of issuance in those asset classes. With demand for floaters running high, automakers can justify the added expense of entering interest-rate swaps to convert portions of their deals into floating-rate paper. Nissan was the first car company to employ the strategy in todays market. On Sept. 21, it priced $970 million of bonds backed by auto leases, including a $378 million tranche of triple-A-rated floaters. That was in addition to a $156 million slice of commercial paper commonly found at the top of asset-backed deals. The floating-rate triple-A portion priced at 18 bp over one-month Libor. Bank of America, Barclays and Credit Agricole ran the books. By building floaters into the transaction, Nissan also was able to reduce the amount of paper that had to be absorbed by its regular investor base. That was very large for a lease offering, a source said. So to be able to place a $378 million slice of [floating-rate notes] was key to getting the whole thing sold. The current situation essentially is the reverse of the supply-and-demand balance that... http://www.abalert.com/headlines.php?hid=153615 Former Deutsche Bank executives Greg Lippmann and Philip Weingord have seen their fortunes diverge in the past two months. The ex-colleagues, who now each runs his own structured-product hedge fund, both took losses in June with Lippmanns LibreMax Partners vehicle declining 2.7 and Weingords Seer Capital Partners Fund dropping 1.4. But Lippmann has been on a winning streak since then, while Weingords performance has continued to slide. Lippmann, whose management shop is dubbed LibreMax Capital, posted gains of 0.7 in July and 1.2 in August. The firms fund now is up 5 for the year. Weingords Seer Capital was down 0.6 in July and 4.1 in August, but still showed a 2011 profit of 3. The differing performance in part reflects some well-timed moves in which LibreMax responded to the past few months financial-market volatility by trading more frequently, along with a decision by Seer to ride out the gyrations. LibreMax traded in and out of 34 positions in August, for example, split evenly among purchases and sales. Along the way, the firm shed exposures to mortgage bonds while adding bets on securities backed by credit-card accounts, private student loans and manufactured-housing loans. Nonetheless, Seer is confident its strategy will prove a long-term winner as values eventually rise among its targeted structured products which encompass a range of asset-backed securities and residential and commercial mortgage bonds. The recent price declines in securitized products have been some of... http://www.abalert.com/headlines.php?hid=153529 CRT Capital is building a securitization-underwriting group. Leading the effort is Justin Tisler, a former Aladdin Capital executive who arrived at the Stamford, Conn., brokerage firm last month. His staff so far consists of just one analyst Tara Chick, who also came from Aladdin. The plan is to hire an unspecified number of additional personnel in the coming months. Their work would include aiding clients in arranging financing from outside warehouse lenders and private equity firms, and then continuing to advise those shops as they eventually issue term securitizations that CRT would structure and distribute. CRT is focusing on small and mid-size players that might sell $50 million to $200 million of bonds at a shot issuers the firm sees as being ignored by larger Wall Street institutions. The deals would be backed by mortgages and other mainstream assets, as well as cashflows that are less common to securitization. In fact, CRT already is preparing to lead its first offering. The transaction, from an undisclosed issuer, is being reviewed by rating agencies and could hit the market in the coming weeks. Tisler reports to CRT capital-markets chief Justin Vorwerk and Jeff Mullins, who co-heads trading of securitized products. The new team would complement a secondary-market brokerage unit that already encompasses some 30 structured-product sales and trading professionals. Tisler joined Aladdin in May in a similar role, but quickly left as the shop shuttered its broker-dea... http://www.abalert.com/headlines.php?hid=153379 A much-maligned SEC rule designed to spur unsolicited grades on structured products ultimately could prove preferable to the transformation of the rating process envisioned by a controversial amendment to the Dodd-Frank Act. Thats the position the American Securitization Forum will stake out when it submits a 25-page letter to the SEC next week commenting on the so-called Franken Amendment. Named for Sen. Al Franken (D-Minn.), the amendment requires the SEC to study the feasibility of replacing the current bond-rating system in which issuers decide on which agencies get to rate their deals with an official body that would assign firms to grade each offering. Though the SEC has until July to complete the study, the deadline for submitting comments is Sept. 13. In its comment letter, the ASF will urge the regulator to fine-tune its ongoing reform efforts rather than abandon the current system altogether. Some issuers have expressed concern the Franken Amendment would be Russian roulette, said ASF executive director Tom Deutsch. The government would get more involved in the ratings process, which is something it said it doesnt want to do. The best alternative in the ASFs eyes: a new version of a year-old rule that has been widely criticized by issuers and investors alike. The rule, known as 17g-5, requires issuers to share deal data with all 10 nationally recognized statistical rating organizations not just with the ones they hire. The idea was to give smaller NRSROs a crack at market leaders... http://www.abalert.com/headlines.php?hid=153271 Brazos Higher Education may have to delay a bond issue that would replace the last of its auction-rate obligations. The $550 million deal would finalize a series of tender offers in which the not-for-profit education lender has been retiring auction-rate securitizations by swapping them out for new floating-rate paper backed by the same assets. While the Waco, Texas, operation had hoped to wrap up the effort by yearend, market players now say it looks like the transaction might not take place until 2012. Why The financial-market turmoil triggered by Samp;Ps downgrade of U.S. Treasurys has prompted holders of auction-rate bonds issued by Brazos and others to sit on their holdings, many of whose interest rates soared to high penalty levels during the credit crisis. Those players apparently want to wait for things to settle down so they can get a clearer picture of how they would fare in surrendering the high-yielding positions for floating-rate bonds with lower returns. Investors also are reluctant to exchange their auction-rate holdings for cash, as it could prove difficult to find suitable replacements amid the market uncertainty. Another wild card for the broader auction-rate bond market: Tens of billions of dollars of securities could encounter credit events if Samp;P follows on up its government downgrade by lowering its view of loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program. That would cause even more deals to pay penalty rat... http://www.abalert.com/headlines.php?hid=153252 It looks like securitization will play a key role in plans by small-business lender Main Street Bank to avoid regulation by ripping up its bank charter. The company, which is reorganizing under the banner Ascentium Capital, is aiming for next year to float a Rule-144A securitization of undisclosed size. The deal would be the first in a routine series of similar offerings. Word got out this week that Main Street, led by Tom Depping, was aiming to shutter its banking operations late this year in an attempt to escape increasingly stringent government controls on banks. As part of the effort, the Kingwood, Texas, bank agreed to sell all four of its branches to Green Bank essentially leaving Depping with the framework to create a non-bank small-business lender with less regulatory oversight. Dubbed Ascentium, the new operation is forming with a $75 million equity injection from Paul Allens Vulcan Capital and Luther King Asset Management. UBS is kicking in a $250 million warehouse line, which Depping will use to accumulate loans until his shop is ready to securitize. The arrangements contrast with Deppings approach at Main Street, which funded its business with FDIC-insured deposits. However, Ascentium would share its predecessors lending focus: writing loans to a range of small businesses nationwide, mostly to finance purchases of equipment that would serve as collateral for the accounts. Ascentium is set to take over $150 million of such loans from Main Street. Green Bank would get the rest of the... http://www.abalert.com/headlines.php?hid=152993 Opponents of proposed risk-retention rules for mortgage securitizations are expanding their lobbying efforts to embrace a potentially persuasive argument: That the regulations would cut off financing for military families. The American Securitization Forum is among a number of trade groups and advocacy organizations seizing on the idea, based on comments that USAA submitted to the FDIC, SEC, Federal Housing Finance Agency, HUD, Treasury Department and Federal Reserve on Aug. 1. USAA maintains that the risk-retention rules, proposed by the six agencies on March 29, would have a lopsided impact on service personnel. Thats because their loans often fail to meet suggested criteria for so-called qualified residential mortgages the only types of home loans that lenders could securitize without keeping stakes of 5 in their deals. USAA, a San Antonio, Texas, company that specializes in lending to current and retired military personnel, points to instances in which deployments, base closures or transfers can force families into short sales that leave blemishes on their credit records. Likewise, such sudden moves can leave those individuals without the 20 down payments needed for qualified-mortgage status. The upshot is that their borrowing costs as non-qualified borrowers would rise, perhaps to prohibitive levels. While ASF and others are still considering how to work that argument into their own lobbying campaigns, they recognize how politically powerful the message could be even if the market-wide impact on lending... http://www.abalert.com/headlines.php?hid=152905 Look for municipalities to begin issuing a new type of securitization backed by loans on clean-energy equipment. The deals would stem from the Property Assessed Clean Energy program, an initiative in which local-government entities lend money to owners of residential and commercial properties for the installation of improved insulation, solar panels and other energy-saving items. Since the program formally launched in 2008, so-called Pace loans typically have been funded via municipal-bond issues. But word has begun circulating that some of the participating municipalities want to start selling paper underpinned directly by their credits deals that would be structured as taxable asset-backed securities. The first such issue could come as early as October. In a Pace loan, the borrower agrees to repay his or her debt through a special property-tax assessment that remains in place for 10-20 years. In that way, securitizations of the credits would differ from a planned spurt of bond issues from private-sector players including NRG Energy, SunRun and SolarCity that lease solar-power equipment to homeowners. Those transactions had been slated to make the rounds with investors this year, but have been delayed until 2012 because no rating agencies have methods in place yet to grade the obligations. That includes DBRS, which has placed any reviews of solar-panel lease paper on the back burner so that it can focus on being the first to come out with criteria for Pace issues. DBRS heightened emphasis on... http://www.abalert.com/headlines.php?hid=152815 Look for mortgage-bond trading to remain stagnant for a few more weeks, as investors take stock of political and financial-market unrest and consider signs of possible improvements. For the most part, buyers and sellers of home-loan paper have been hesitant to jump into the secondary market in recent weeks amid uncertainty over the U.S. debt ceiling and continued fiscal strains in Greece and several other European nations. The upshot: Prices for most such securities rose a mere one or two cents on the dollar this week, even though supply was scant. Traders see that pattern continuing for now. But theyre also pointing to signs that activity will pick up in a few weeks, with prices likely climbing in tandem. One source of encouragement has been this weeks rise in stock prices. The gains, which saw the Samp;P 500 index climb from below 1,300 on Monday to almost 1,350 on Thursday, suggest that forward-looking players in the equity market have incorporated a debt-ceiling compromise into their trades. If the Samp;P 500 starts looking like it might hit 1,400, non-agency prices are going to go higher, one bond trader said. The optimism comes with a downside, however. With the prices of mortgage securities projected to rise, few bondholders are willing to sell at todays levels perpetuating the markets currently stagnant state. While some bid lists have made the rounds, takers have been scarce and many sellers have been more interested in measuring the values of their holdings than finding actual... http://www.abalert.com/headlines.php?hid=152795 J.P. Morgan is eyeballing HSBCs U.S. credit-card business. London-based HSBC put its $33 billion portfolio on the block last month, and began accepting bids a few weeks ago. So far, only Capital One has stepped forward as a formal bidder, though other credit-card operators, including GE Capital, appear to be considering offers. HSBCs portfolio is split between its own bankcard accounts and private-label cards written for retailers including Best Buy. Market players see J.P. Morgan as a natural bidder because it has long wanted to expand its private-label card business, viewing HSBCs portfolio as something of a model. Indeed, prior to the credit crisis, J.P. Morgan went on a buying spree, snapping up in-house card programs from Kohls, Pier 1 Imports and Sears Canada. Now, the New York bank is keen on resuming that effort. What better way to get started than buying its one-time competitor, a source said. Another benefit for J.P. Morgan, or any other buyer, would be acquiring the residual payment streams from 12 HSBC card-bond offerings totaling $8.6 billion. For its part, J.P. Morgan hasnt been a frequent issuer of credit-card securities since the Financial Accounting Standards Boards FAS 166 and 167 rules negated the balance-sheet advantages of securitization for banks. But after an 18-month absence from the card-bond market, J.P. Morgan has issued two $500 million deals this year one in March and another in June. A move by the bank to acquire the HSBC portfolio almost... http://www.abalert.com/headlines.php?hid=152579 American Express has been chatting up underwriters about floating its first offering of credit-card bonds in more than a year. Like other big card lenders, Amex has mainly relied on savings deposits to fund itself in the past couple of years. But with $5.7 billion of card bonds set to mature this year, the company is expected to tap the asset-backed securities market to refinance at least a portion of those obligations. In meetings with securitization bankers, Amex has outlined a deal that could hit the market before the end of the third quarter and weigh in around $1 billion. Talk of the offering has lit a fire under investors, who have been salivating for fresh credit-card securities from top-tier issuers like Amex. U.S. card-bond issuers sold $6.9 billion of securities during the first half, though most of that came from small and mid-size players such as Cabelas and 1st Financial. Amexs last offering was a $911.8 million transaction that priced in April 2010 via Barclays. Like other major card lenders, Amex has steered clear of the asset-backed bond market ever since the Financial Accounting Standards Boards FAS 166 and 167 rules undercut the balance-sheet benefits of securitization last year. Its 2010 card-bond issuance totaled just $1 billion, compared to $2.3 billion the year before and $11.7 billion in 2008, according to Asset-Backed Alerts ABS Database. One securitization banker said the company is eyeing a return to the bond market not so much because it has to, but... http://www.abalert.com/headlines.php?hid=152388 Barclays has hired former J.P. Morgan mortgage banker Greg Boester to lead an initiative aimed at expanding its role as a funding source for U.S. home loans. Boester, who most recently helped manage a mortgage-backed securities fund at Citadel under industry veteran Bill King, is set to join Barclays New York office on Sept. 15 as a managing director. Hell report to Tom Hamilton, head of securitized-product trading, and Diane Rinnovatore, who leads securitization banking with Cory Wishengrad. Joseph ODoherty, a director who has worked at Barclays for several years, will be Boesters right-hand man. Boesters general mandate is to promote Barclays as a funding source for lenders that originate mortgages. Much of that effort will entail writing more warehouse lines to mortgage lenders across the U.S. In some cases, Barclays might purchase the resulting mortgages, then securitize them via its own conduit. In other cases, the originators might securitize the loans themselves, with Barclays playing the role of bookrunner. In addition, Barclays might help broker sales of mortgage portfolios. Because Barclays doesnt originate home loans in the U.S., its ability to develop relationships with mortgage lenders is key. The bank is counting on Boester to leverage his extensive experience in the mortgage business, including a stint at J.P. Morgan from 2002 to 2008, followed by three years at Citadel. Boester also will work on mergers and acquisitions that involve the transfer of large pools of whole loans or... http://www.abalert.com/headlines.php?hid=152243 amp;nbsp; Martin Gruenberg, widely viewed as President Obamaamp;rsquo;s top choice to lead the FDIC, has taken a stand on pending covered-bond legislation that is antithetical to the industry playersamp;rsquo; positions. In an informal meeting with supporters of the bill, Gruenberg said last week he supports the FDICamp;rsquo;s long-standing position that in the event of a bank failure, the agency amp;mdash; and not investors amp;mdash; should have first dibs on any excess collateral tied to a covered-bond offering. Gruenberg, currently vice chairman of the FDIC, is expected to get Obamaamp;rsquo;s nod to replace outgoing chairman Sheila Bair, who steps down July 8. Gruenbergamp;rsquo;s comments on the legislation came as something of a shock to lawmakers and bank lobbyists, who quietly had been assured by administration officials that Bairamp;rsquo;s replacement would be more receptive to their concerns. Market players have said that for a covered-bond market to emerge in the U.S., the assets in amp;ldquo;cover poolsamp;rdquo; would have to be protected from seizure by regulators. As one industry insider put it, Gruenbergamp;rsquo;s position amp;ldquo;has presented some issues that have to be taken care of, or there will be no covered-bond market in the U.S.amp;rdquo; The bill, dubbed the U.S. Covered Bond Act, advanced in the House on June 22, when the Financial Services Committee voted 44-7 to send it for a full... http://www.abalert.com/headlines.php?hid=152122 Ally Financial is shopping $500 million of jumbo mortgages with an eye toward securitizing the credits if bids dont come in high enough. The bank has set a June 20 deadline for offers, and from there will measure whether a whole-loan sale or a securitization would be more appealing from a funding-strategy standpoint. Should it accept a bid, the plan is to close a sale by mid-August. But if a mortgage-bond offering appears to make more financial and strategic sense, Ally would attempt to complete the issuing process by yearend. Even if the bank doesnt securitize, its loans could wind up as bond collateral. Thats because the credits already are generating heavy interest among operators of conduits that buy mortgages with securitization as an exit strategy. They include Barclays, BlackRock and Wells Fargo. Pimco also has been looking at the portfolio. The interest ties in with efforts at those shops to have bond offerings at the ready when the now-frozen market for private-label mortgage paper finally thaws. Allys offering encompasses prime-quality credits with adjustable interest rates that reset after three, five or 10 years. The bank wrote the loans in recent months. The pricing threshold for Ally to pull the trigger on a whole-loan sale isnt clear owing in part to the fact that funding costs arent its only consideration. Indeed, there already is enough demand from buyers to make a loan sale less costly than a securitization, especially considering rating fees and other expenses involved in a bond iss... http://www.abalert.com/headlines.php?hid=152101 Several large investment banks are assembling aircraft-lease securitizations on behalf of clients, potentially ending a two-year drought in the sector. BNP Paribas, Credit Agricole, Goldman Sachs, J.P. Morgan are among the institutions preparing such deals. Guggenheim Partners underwriting unit also appears to have some offerings in the works. The transactions would total $300 million to $1 billion each, and could start hitting the market late this year. Why the sudden interest Aircraft-finance shops are purchasing increased numbers of new jets for their fleets, causing their financing needs to outgrow the availability of secured and unsecured credit from commercial banks. Some bond sales also could finance acquisitions of older aircraft, as opposed to the newer and more easily sold planes favored by banks as loan collateral. Lessors also are looking at ways to cut capital-raising costs amid reductions in OECD subsidies for aircraft exports, and pullbacks by banks including RBS that had been supplying much of their funding but now are bracing for economic instability at home. Meanwhile, investors are taking notice of the fact that outstanding aircraft-lease securitizations have performed well through the downturn and could satisfy a need for added yield. The annual volume of aircraft-lease securitizations peaked at $9 billion in 2007 but then tapered off amid the credit crisis, according to Asset-Backed Alerts ABS Database. There hasnt been an offering in the sector since United Continental... http://www.abalert.com/headlines.php?hid=151844 The SEC is taking another look at a much-maligned rule designed to promote unsolicited ratings of structured products. The year-old rule, known as 17g-5, requires issuers to simultaneously share data on new deals with all 10 nationally recognized statistical rating organizations via secure websites. The idea was to give smaller rating firms a crack at market leaders Moodys, Samp;P and Fitch, and thereby spur more accurate grades for investors. But issuers have chafed at the rule right from the start, citing the trouble and expense of setting up the websites not to mention the obligation of disclosing private communications with the rating agencies they hire. Its unclear what kinds of changes the SEC is contemplating to 17g-5. What is clear is that the rule has failed to generate unsolicited ratings. Indeed, since it went into effect June 2, 2010, virtually none of the websites set up by bond issuers have registered more than a handful of hits. Tens of millions [of dollars] to set up, and only a couple of looks, one securitization professional complained. The SEC presumably is considering ways to increase traffic to the websites and thereby spur more rating firms to analyze deals. The agencys official line is that the review is part of a longer-term effort to implement the so-called Franken Amendment to the Dodd-Frank Act, which envisions a wholesale transformation of the ratings process. Specifically, the amendment requires the SEC to study the feasibility of creating an official body that would assign... http://www.abalert.com/headlines.php?hid=151754 WestLB has put its U.S. structured-product operation on the block. The marketing effort got under way last week and already has garnered a few tentative offers, though its not entirely clear how much of WestLBs U.S. business remains intact. Prior to the credit crisis, the bank was known in the States for its commercial-paper conduits and an asset-management unit called Brightwater Capital that managed collateralized debt obligations and structured investment vehicles. But those businesses have since been shuttered or radically downsized. The expectation is that the sale will draw keen interest from large hedge funds and investment banks that want a crack at the WestLB vehicles remaining inventories of structured products, including asset-backed securities, mortgage bonds and CDOs. Wells Fargo appears to be among the big banks that have expressed early interest. Everybody from Lone Star to BlackRock is going to take a crack at that portfolio, one market player said. And I can guarantee nobody is going to pay what WestLB wants for it. Theyre going to be offering pennies on the dollar for the stuff. A pullback by WestLB has looked increasingly likely since last November, when the European Commission ordered the Dusseldorf, Germany, bank to pare assets, sell peripheral businesses and return to its original mission as a central bank for state-owned depository institutions in Germany. The restructuring was tied to large subsidies WestLB received from the German government in the wake of the... http://www.abalert.com/headlines.php?hid=151643 Goldman Sachs has taken the pole position among banks racing to set up mortgage conduits. Goldman has been stockpiling jumbo mortgages at a rate that far exceeds the buying activity of Bank of America, Barclays, Credit Suisse, RBS and other banks that are trying to revive their once-active conduit businesses. In doing so, Goldman appears to have gained the inside track to issue what would be the first securitization resulting from the efforts which essentially vanished amid the 2008 market downturn. By coming to market first, Goldman also would get an advantage when it comes to winning underwriting assignments from other mortgage lenders once the securitization environment improves. A growing number of Wall Street banks and large asset managers have taken steps to set up mortgage conduits ahead of an anticipated reduction in the loan-buying limits of Fannie Mae and Freddie Mac on Oct. 1 a shift that will lead to a big jump in the availability of jumbo-mortgage collateral. Goldman, which put its conduit plans in motion last year, already has assembled a pool of receivables that market players peg at more than $1 billion. The bank has been working with regional banks, credit unions, non-bank lenders and buyside players such as hedge funds to identify loans that meet its risk parameters, including borrower credit scores and loan-to-value ratios. Market players said Goldman has had more success than others in finding suppliers of mortgage collateral because it is paying a premium for the loa... http://www.abalert.com/headlines.php?hid=151444 Credit-card securitizations are in the works on both sides of the Atlantic. Lloyds Banking is expected to roll out its next offering of U.K. credit-card bonds within a couple of months. J.P. Morgan, meanwhile, is considering a sequel to $500 million of card bonds it issued March 31. The Lloyds transaction, still in early-stage development, is expected to weigh in around amp;163;500 million ($815 million). It would be Lloyds second credit-card securitization of 2011, and sources said the bank will likely issue two more transactions before the year is out. Lloyds was last in the market with a credit-card deal on Jan. 27, when it sold amp;163;500 million of bonds. In 2010, it issued three card-bond transactions denominated in pounds and euros totaling $4.6 billion, plus a $750 million U.S. transaction, according to Asset-Backed Alerts ABS Database. The timing of J.P. Morgans offering is still fuzzy, but its expected to match the size of a March 31 transaction from the bank. That deal was J.P. Morgans first card-bond offering since 2009. It also marked the first time a major U.S. bank sold senior credit-card securities since Bank of America issued a $900 million transaction in May 2010. J.P. Morgans renewed interest in securitizing its card accounts has some market players predicting that U.S. card-bond issuance this year could top last years anemic volume of $7.5 billion. So far this year, Citigroup, Discover, GE Capital and J.P. Morgan have issued a combined $3.7 billion of bonds backed by credit-c... http://www.abalert.com/headlines.php?hid=151346 The six federal regulators that unveiled a sweeping risk-retention proposal on March 29 have backed away from a key provision that market players saw as the biggest threat to securitization. In effect, the FDIC, Federal Housing Finance Agency, Federal Reserve, HUD, SEC and Treasury Department have acknowledged they made a mistake when they drafted a requirement that would have forced mortgage-bond issuers to deposit the proceeds from sales of interest-only strips into escrow accounts. IO tranches allow issuers to monetize the excess spread from their deals, and are often a key source of profit when lenders securitize mortgages. In its original form, the risk-retention proposal would have prevented issuers from immediately pocketing IO proceeds, and instead would have directed the funds to be used as a first-loss buffer protecting bond investors. But now the government has done an about-face and is prepared to allow issuers to keep their IO proceeds, according to industry professionals who have been briefed on the decision. The regulators know they completely screwed up the excess-spread provision, one industry executive said. That section will change immensely or be removed altogether. The move follows an outcry from bank executives and industry lawyers, who warned the provision would have killed private-label mortgage securitization. The intent of the proposal was to ensure lenders keep more skin in the game when they securitize their credits. But the effect, market... http://www.abalert.com/headlines.php?hid=151325 Barclays hired three securitization executives this week, plugging some of the staffing holes that emerged when more than a dozen employees followed Jay Kim to Credit Suisse in February. Meanwhile, one of Kim's predecessors at Credit Suisse, Michael Wade, has resigned from the bank. His plans are unknown. Two of the Barclays recruits, Eric Chang and Mahesh Rajagopalan, will arrive in the bank's New York office in May. Kashif Gilani will start in June. Chang, an origination specialist focusing on auto-loan deals, had been working at Bank of America since 2005. Rajagopalan and Gilani are coming over from Credit Suisse, where they handled securitization structuring. Barclays plans to keep adding personnel in the coming months to fill other gaps. Chang is taking the title of vice president. He'll report to Martin Attea, a former Morgan Stanley executive hired in March to oversee origination of consumer-asset securitizations a function that had been part of Kim's job. Attea also is set to arrive in May. Rajagopalan will be a director, with Gilani filling a vice president slot. They'll answer to Cory Wishengrad and Diane Rinnovatore, who head securitization banking a layer above Attea. Wishengrad used to share control of the group with Kim. Rinnovatore, meanwhile, stepped in from Barclays' debt capital markets division to lend a hand following Kim's departure and was officially placed in her current role on April 18. As for Kim, he'll arrive at Credit Suisse in the coming weeks as head of... http://www.abalert.com/headlines.php?hid=151188 Clayton Holdings, CoreLogic and Lewtan Technologies are equipping themselves for an increase in business triggered by the Dodd-Frank Act's securitization-disclosure rules. Each of the companies is currently assessing its personnel needs in anticipation of future hiring campaigns. They'll need software professionals to write new programs that issuers would use to report data, along with programmers who could modify existing systems so that investors can interpret that information. There also will be openings for individuals versed in loan underwriting people who would be tasked with ensuring that the shops are collecting the proper records. CoreLogic is hoping to get a jump on modifications to existing software by quizzing the SEC on the types of data issuers will have to supply. It's also weighing whether those programs are adequate, and is considering buying or teaming up with another shop to fill any gaps. Clayton and Lewtan, meanwhile, are figuring out how to create products that would help issuers meet a requirement that they supply investors with constantly updated data on each deal's payment waterfall. Some of the shops' rivals also are likely to see business grow as a result of the new rules, and sources expect some startups to appear as well. However, any takeovers or recruiting drives won't get under way until after the SEC releases a preliminary version of the disclosure requirements a few months from now. Generally speaking, the rules are expected to mandate that issuers of m... http://www.abalert.com/headlines.php?hid=150931 Banks that want to set up mortgage conduits are suddenly wondering if their efforts could be hindered by a yet-to-be-issued directive from a U.S. government agency that still doesn't exist. At issue is how the Consumer Financial Protection Bureau will define qualified mortgages deemed to satisfy a Dodd-Frank Act requirement that lenders verify borrowers' repayment ability. After seeing the FDIC, Federal Housing Finance Agency, Federal Reserve, HUD, SEC and Treasury Department jointly propose a narrower-than-expected classification for qualified loans on March 29, industry players say prospective conduit operators including Bank of America, Barclays, Credit Suisse, RBS and Wells Fargo now must consider the possibility that the bureau also will grant little leeway. Buyers of credits that don't meet the bureau's criteria would have to re-check the underlying individuals' incomes, debt loads and other financial measures essentially, going through the mortgage-underwriting process over again. That would introduce a host of unanticipated work and associated costs for conduit operators, which purchase home loans with securitization as an exit strategy. The added expenses could sap much of the appeal from conduits, whose underlying mortgages presumably would include those at the greatest risk of missing out on qualifying status. Loan originators wouldn't feel the same effects, as they verify borrower quality anyway. But they could lose an important source of secondary-market... http://www.abalert.com/headlines.php?hid=150816 The American Securitization Forum will seek changes to a long-awaited risk-retention proposal that the government released March 29. The trade group is in the early stages of crafting its response, but already is seen as a candidate to align its efforts with those of financial-industry and consumer-advocacy groups including the American Bankers Association, Center for Responsible Lending, Consumer Federation of America, National Association of Home Builders, National Association of Realtors, National Community Reinvestment Coalition and Sifma. Among their likely requests: That regulators widen the definition of qualified mortgages whose securitizations would be exempt from the risk-retention rules. The lobbying effort will likely focus on the U.S. House instead of the agencies that issued the proposal the FDIC, Federal Housing Finance Agency, Federal Reserve, HUD, SEC and Treasury Department. That's because the risk-retention measure is a product of the Dodd-Frank Act, which faces some opposition among Republicans, who took control of the House in January. With consumer groups also on board, the feedback could resonate well beyond House Republicans. This is one of the few issues where a myriad of industry groups and consumer groups will be banding together and pushing for changes, ASF executive director Tom Deutsch said. Indeed, one lawyer said it will be difficult for lawmakers to ignore the pressure. They could respond by talking to regulators privately, holding public hearings or... http://www.abalert.com/headlines.php?hid=150673 Look for liquidations of collateralized debt obligations to become less frequent this year, despite an overhang of defaulted transactions that could suggest otherwise. According to Moody's data going back to the birth of the CDO sector, bondholders in 175 defaulted issues have voted to liquidate all but two since the start of the credit crisis. At the same time, investors in 132 issues have cast ballots to accelerate payments on senior notes but have yet to decide whether to unwind the deals' underlying portfolios. And the holders of another 104 defaulted transactions haven't come to any agreements on what steps to take. Combined, they could represent a wave of potential liquidations. But market players say that's unlikely. Bondholders in most defaulted transactions have had plenty of time to consider their options, and those in a position where liquidation made financial sense and was easy to approve already have moved forward with that process. That leaves deals where resolutions are likely to come slower. We expect liquidations to continue, but at a slower pace than in recent years, said Evan Tepper, a senior CDO analyst at Moody's. The slowdown has already been evident this year, as noteholders in a mere five deals have voted to liquidate since Jan. 1. During the same period in 2010, the tally was 20. The most recent liquidation vote came March 14, among owners of paper from Merrill Lynch's 2007-vintage Forge ABS High Grade CDO 1. In many cases, bondholders want to avoid simultaneous asset sales that would... http://www.abalert.com/headlines.php?hid=150538 A buzz is developing about a jumbo-mortgage securitization that's slated to hit the market by midyear, but industry players are still trying to identify the issuer. Sources have narrowed the field to a large mortgage lender, perhaps Bank of America, Citigroup or Wells Fargo. The talk is that the $500 million deal, set for the April-June period, would mark the latest in a series of attempts by such institutions to gauge how strongly investor demand for private-label home loan paper has recovered from the credit crisis. Should the economics prove favorable, the issuer and some of its peers would likely follow up with routine offerings. Even if the bank takes a loss, it might view the process as a worthwhile exercise in establishing relationships with buysiders ahead of an eventual market rebound. Current funding-cost estimates suggest that issuers of prime-quality mortgage paper would break even or take slight losses. Exact expenses are a moving target, however, and can't be nailed down for a specific transaction until it's in front of investors. They're not going to know for sure until they try. And they're tired of waiting on the sidelines, one dealer said. Indeed, banks have been keeping tabs on the mortgage-securitization environment ever since the market crashed in 2007, but have largely held back their once-prolific issuing programs due to excessive costs. Redwood Trust has been the only issuer to complete a deal backed by fresh loans in 2011. It also was alone in tapping the market in 20... http://www.abalert.com/headlines.php?hid=150518 MetLife has pegged securitization as the primary source of funding for a planned expansion of its mortgage-origination business. The New York insurer, whose banking arm eventually hopes to become one of the top-five private-label mortgage lenders in the U.S., already has hired the first several members of a team that would assemble the deals. However, it won't move forward with any bond issues until it's clear how pending regulations might affect the business. Among those directives are new disclosure and risk-retention guidelines that take effect at yearend under an updated version of the SEC's Regulation AB, along with a Dodd-Frank Act provision that makes it easier for investors to sue rating agencies for fraud. MetLife also is looking for indications of how to shape its activities amid the unwinding of Fannie Mae and Freddie Mac. No matter how those matters are resolved, however, the insurer doesn't see other funding methods taking the place of securitization. Private securitization will be essential for MetLife. They recognize it and they will be a big player, said David Lykken, a managing partner at consulting firm Mortgage Banking Solutions in Austin, Texas. MetLife has issued asset-backed bonds twice before, via two equipment-lease issues adding up to $361 million in 1996 and 1997. It also floated four collateralized debt obligations totaling $1.5 billion in 2000 and 2001, according to Asset-Backed Alert's ABS Database. All along, the company has been a heavy buyer of structured-finance instruments.... http://www.abalert.com/headlines.php?hid=150342 The worldwide asset-backed commercial paper market appears to be regaining forward momentum, thanks to increasing output from European banks. According to Moody's, the world's 20 largest conduit administrators had a combined average of $391.8 billion of securities outstanding during the fourth quarter of 2010, up from $380.1 billion during the second quarter. Now, indications are that global conduit outstandings could rise throughout 2011 following a decline that dated back to the 2007 market crash. Europe-based conduit operators are playing a big role in the shift, particularly RBS. The bank ranked as the world's largest administrator, up from fourth six months earlier, as its average outstandings grew to $51 billion from $29.5 billion. The main reason: It began using a vehicle called Churchill Loan Asset Securitization that weighed in at an average of $23.6 billion during the final three months of last year, up from zero three months earlier. In fact, the total for the top-20 administrators would have shrunken had it not been for Churchill. Most other conduits that experienced rapid growth during the fourth quarter are run by European banks. Rabobank's Nieuw Amsterdam vehicle grew 76 to an average of $6.5 billion, for example, while Lloyds Banking's Argento Variable Funding was up 53 to $9 billion. They're moving forward with their conduits, guns blazing, one source said. Among European institutions in the top 20 administrators, Barclays, Deutsche Bank, Lloyds and Societe Generale joined ... http://www.abalert.com/headlines.php?hid=149927 U.S. Financial Investments is starting a sales-and-trading team focused on structured products. The New York broker-dealer already has hired a number of personnel for the effort, including group head Peeyush Varshney. He arrived last week as a managing director, following a stint as head of sales and trading at Fort Lauderdale, Fla., asset manager AmericaVest. Varshney also has held similar posts at Auriga USA, Morgan Joseph, Goldman Sachs, Sandler O'Neill and J.P. Morgan. Joining U.S. Financial at the same time: Sumit Chhabra, previously of Barclays; Robert Kaplan, formerly of Alfa Bank; Ryan Linski, most recently of Tejas Securities; and Raj Nandkumar, from Credit Suisse. Varshney may hire a few more sales professionals and traders in the coming month. His team plans to deal in asset-backed securities, mortgage bonds and collateralized debt obligations. The effort places U.S. Financial among a number of brokerage shops that have started similar efforts in recent years. http://www.abalert.com/headlines.php?hid=149756 Deutsche Bank and Morgan Stanley plan to push out some of their poorest-performing securitization staffers. Market players expect the housecleaning efforts to take place over the next month, targeting specific personnel at various levels across the banks' asset- and mortgage-backed bond underwriting and trading desks. Some will be laid off. Others will receive only small annual bonuses, with the notion that those individuals will get the picture and leave on their own. However, neither bank is planning to cut back its overall involvement in the securitization field from current levels. One source instead characterized the efforts as modeled after a process in which Goldman Sachs routinely culls a set percentage of the worst performers from each of its departments. The idea, in part, is to make room for fresh blood. Indeed, Deutsche staged a similar effort in October and November dismissing an undisclosed number of staffers whose work wasn't up to par and replacing them with new recruits. Word of the upcoming cuts at Deutsche and Morgan Stanley began to circulate among market players at the American Securitization Forum's ASF 2011 conference in Orlando on Feb. 6-9, and it appears the moves are timed to coincide with plans by the banks to award annual bonuses in the next two weeks. Industry players say it's no surprise the banks want to remove dead weight. Like most of their peers, both terminated swaths of securitization staffers following the 2007 market crash, and they... http://www.abalert.com/headlines.php?hid=149538 Far fewer credit-card bonds are coming due this year than in 2010, suggesting another anemic year for card securitization. Only about $60 billion of such securities are slated to mature in 2011, down from $100 billion last year, according to Moody's. Despite the drop-off, the agency is estimating issuance of $15 billion to $25 billion of credit-card securities in the U.S. this year, which would exceed the $7.5 billion sold in 2010, according to Asset-Backed Alert's ABS Database. Still, the middle of the predicted range would amount to less than half of the $47 billion sold in 2009. Analysts at Moody's noted that most of the increased issuance isn't expected until the second half of the year. At this time last year, Moody's over-estimated 2010 issuance by a wide margin, predicting that about $50 billion of card securities would hit the U.S. market. Over the past couple of years, banks have been funding much of their card operations through lower-cost deposits, rather than structured finance, and that trend is expected to continue this year. Issuers backed away from the ABS market after the financial crisis scared off investors. On top of that, new Financial Accounting Standards Board rules that took effect in 2010 curtailed many of the accounting advantages of securitization. Still, major players will likely want to maintain a presence in the card-bond market this year, according to Moody's, if only to sustain the infrastructure and relationships needed to generate new issuance when necessary. Issuers want to keep the... http://www.abalert.com/headlines.php?hid=149391 AgriBank's insistence on retaining its mortgage-bond investments through the worst of the credit crisis may finally be paying off. Buyside players expect that when the St. Paul, Minn., lender issues its 2010 annual report at the end of this month, writedowns on its mortgage-bond holding will be much smaller than before maybe $55 million of fresh markdowns last year, compared to $221.6 million in 2009 and $345.8 million in 2008. At this rate, those investments could even start recovering some value by the end of this year. That would mark a vindication of sorts for AgriBank's strategy of sitting on its mortgage-bond portfolio even as its value plummeted amid the credit-market meltdown. While most other institutional investors unloaded their structured-product holdings, often at extreme discounts, AgriBank wagered that eventually credit conditions would improve, and its positions would regain much of their lost value. AgriBank's holdings of non-agency mortgage bonds are split into two portfolios, one containing paper backed by jumbo and alternative-A mortgages, and the other involving subprime mortgages and home-equity loans. The prime and alt-A securities had a value of $333.9 million at the end of the third quarter, while the other component was valued at $220.5 million. In its annual report, AgriBank is expected to write down the non-agency portfolio by another $25 million, versus an unrealized loss of $129.4 million for 2009. The bank is seen writing down the other portfolio by... http://www.abalert.com/headlines.php?hid=149373 Industry participants no longer see a major threat in efforts by Samp;P to determine whether stricter swap-counterparty requirements might lead to downgrades of asset- and mortgage-backed bonds but they may not be completely out of the woods. The agency created alarm among bankers when it suggested in December that a wide swath of deals could be affected by the swap adjustments, which raise the rating thresholds at which counterparties in interest-rate and currency contracts are considered able to meet their obligations. A Jan. 18 list of securitizations placed on watch for downgrades as part of the process turned out much smaller than expected, however. Samp;P's action encompasses $115.8 billion of bonds: $85.5 billion of home-loan paper; $17.9 billion of collateralized debt obligations; $6.4 billion of asset-backed bonds; and $5.9 billion of commercial mortgage securities. The agency has said it has no plans to place more bonds on watch because of the redefinition. One banker said he expected the total to be tens of billons of dollars higher. In that sense, the outcome is a relief. With no clear way to explain the discrepancy, however, he and other market participants remain on edge. I don't think people are 100 certain why [the list is] so much smaller, the banker said. There's a fear that there could be another shoe to drop here. In part, the narrower-than-expected field reflects the fact that Samp;P isn't considering downgrades for bonds whose ratings already are lower than those of their swap... http://www.abalert.com/headlines.php?hid=149225 Bargain hunters are grumbling that Bank of America and Citigroup have been stepping in at the last second to buy pieces of their own clients' bid lists but many market players say there's nothing wrong with the practice. The complaints, from investors and smaller broker-dealers, focus on apparent purchases by the banks of collateralized loan obligation paper they were hired to pitch on the secondary market. The problem: In some instances, those same securities are quickly reappearing in the institutions' own for-sale inventories at higher prices. Sources say that amounts to front-running by BofA and Citi. That is, the banks are accused of engaging in the frowned-upon practice of using bids from would-be buyers to spot potential discounts for themselves and then attempting to flip the paper at a profit. However, other industry players argue that BofA and Citi have no choice but to take down their clients' offerings when bids arrive too low. Those individuals characterize the complaints as sour grapes from investors whose lowball prices were rejected, noting that the banks have to fulfill their functions as market makers. Take a $2.7 billion package of CLO paper that hit the secondary market on Jan. 14, fetching offers of 70-70.5 cents on the dollar. An executive at a smaller broker-dealer claims the lead bank he wouldn't specify whether it was BofA or Citi informally notified him that one of his customers had won the auction. But the sale was never finalized, and within a day, the bank itself was... http://www.abalert.com/headlines.php?hid=149074 General Motors Financial is preparing to boost its securitization volume. The auto lender, formed via GM's purchase of AmeriCredit last year, plans to offer $1.5 billion of fresh paper backed by subprime credits each quarter going forward. Its next such deal: An offering of at least $600 million that's set for late January or February. Some auto-lease offerings also could come down the line. But even without those deals, the subprime-loan transactions alone would position GM Financial as a bigger issuer than AmeriCredit ever was. AmeriCredit's annual securitization volume peaked at $5.5 billion in 2005 and tapered off during the global financial crisis, falling to $725 million in 2009. Last year saw a rebound to $3.1 billion, according to Asset-Backed Alert's ABS Database. The upcoming jump in GM Financial's issuance volume ties in with expectations that the former AmeriCredit would write more loans and leases as a unit of GM, in part by dealing with customers of its new parent. Right now, 25 of GM Financial's roughly $9 billion portfolio consists of loans on GM vehicles. However, questions remain about exactly what types of accounts the shop will handle. It initially appeared that more prime-quality lending was in the cards. Now, however, it looks like affiliate Ally Bank might be first in line for that business. On the subprime side, GM Financial is among players that could see their businesses jump with TD Bank's planned purchase of Chrysler Financial. That's because TD plans to cut back Chrysle... http://www.abalert.com/headlines.php?hid=148819 Bank of America is officially out of the business of running commercial-paper conduits. The Charlotte bank paid off all of its outstanding conduit paper within the last week or two, and shuttered all but one of its issuing vehicles. While the move didn't come as a total surprise as managers at the institution had been debating doing just that in recent months the speed at which they followed through with the plan caught industry players off guard. Indeed, BofA still had billions of dollars of paper in the hands of investors just last month. Apparently, the bank's treasury officials rejected arguments by conduit-department staffers that their vehicles still offered an attractive means of financing clients' receivables. Customers who maintained conduit facilities with BofA are still getting funding from the bank, which now is drawing on deposits and receivable-purchase facilities to supply the capital. It's unclear what will become of the institution's conduit-operations staff, led by Whit McDowell. At its peak, BofA had as much as $50 billion of conduit paper outstanding at any given time and routinely ranked among the market's most active administrators. Like its peers, however, the bank's output was diminished by credit-crisis pressures and less-favorable accounting treatment that came with the implementation of the Financial Accounting Standards Board's FAS 166 and 167 rules a year ago. According to the latest data available from Moody's, BofA had an average of $8.6 billion of conduit paper in the hands of... http://www.abalert.com/headlines.php?hid=148737 Auto lenders including Ford, General Motors, Nissan and Honda are putting increasing pressure on the SEC to ease back on proposed revisions to its Regulation AB. The issuers, 16 in all, jointly contacted the agency in recent days about potential adjustments that would either make it easier to comply with the new Reg AB codes or allow them to sidestep certain aspects of the rules. They say that without the changes, securitization costs would rise to the point where some smaller players would be forced out of the market. This actually marks the second incarnation of the lobbying effort, after an initial round of comments to the SEC gained little traction. The lenders are acting now largely out of a feeling that the coming months will represent their final opportunity to sway the regulator. The SEC's Reg AB revisions, released May 2, would tighten disclosure procedures for a range of issuers. While a number of aspects of the overhaul have met resistance from industry players, the changes are likely to be finalized by mid-2011 with implementation following 90 days to one year after that. The auto lenders' efforts are aimed at two measures in the new Reg AB draft that would affect all types of asset-backed bond deals. One is a high-profile risk-retention requirement under which issuers would need to retain a 5 stake in each of their securitizations. The other necessitates disclosure of additional collateral information to clients, along with the use of waterfall-modeling software that would allow issuers... http://www.abalert.com/headlines.php?hid=148629 Enterprise Rent-A-Car is planning its first securitization. The early-2011 arrangement, backed by so-called fleet leases, would actually encompass two components: a term deal and a commercial-paper conduit facility. Its overall size is likely to be comparable to other recent offerings in the sector, suggesting that Enterprise will try to raise $500 million to $1 billion. The effort is timed to take advantage of increasing investor demand that has emerged for bonds involving less-mainstream assets, given falling returns on the most familiar securities. With the three-year senior pieces of credit-card deals trading at a mere 33 bp over Libor and comparable student-loan paper going for 45 bp, for example, more investors are looking to higher-yielding collateral like fleet leases - where they're getting spreads of 75-100 bp. Given the heightened demand, Enterprise can probably expect its bonds to price at the low end of that range. Enterprise's deal would be backed by lease payments that corporate customers make on fleets of vehicles. That sets the St. Louis company apart from most of its peers, which have been securitizing cashflows - often still coined as leases - attached to cars rented to travelers. In fact, the most recent transaction underpinned by corporate leases was a $500 million issue by Automotive Resources International on Feb. 4. The mix is expected to include more corporate-lease deals going forward, however, as more issuers are drawn into the market. One potential candidate... http://www.abalert.com/headlines.php?hid=148514 Waterfall Asset Management is pushing to raise another $600 million for a hedge fund that buys nonperforming home loans, rehabilitates them and then securitizes some of the credits. The New York firm, headed by securitization veterans Tom Capasse and Jack Ross, currently manages about $400 million via the Waterfall Victoria Fund. Capasse and Ross plan to kick off a marketing campaign around the start of the new year with the goal of reaching $1 billion within 12-18 months. Waterfall launched the fund in July 2007 with backing from investment manager M.D. Sass and Macquarie Group, but purposely avoided aggressive marketing efforts in the following years. That's because the firm was concerned about a quot;double-dipquot; recession and the end of a federal tax-credit program for new home buyers, which expired April 30. The thinking now is that the housing market finally has hit bottom and will soon begin a slow recovery. The firm hopes to expand its buying activity while there's still ample supply of distressed mortgages, then work with borrowers amid a gradual improvement in home values. Waterfall is among a handful of mortgage-rehab specialists, including Arch Bay Capital and Selene Investment, that are eager to buy more loans. Selene, a New York firm headed by mortgage-backed securities pioneer Lewis Ranieri, has raised at least $250 million for a closed-end fund that expects to hold a first equity close later this month (see article on Page 5). Firms like Selene and Waterfall specialize in buying distressed home... http://www.abalert.com/headlines.php?hid=148413 A shift in strategy at Citigroup, RBC Capital and UBS could result in an increased flow of student-loan securitizations early next year. The expectations mark yet another turn in the prolonged auction-rate debt saga. As investors in such deals, Citi, RBC and UBS repeatedly rebuffed earlier requests by issuers to allow buy-backs of the obligations. But each of the banks lately has softened that stance. Here's the plan: The institutions would sell their auction-rate student-loan paper back to the issuers, which would raise the money for the repurchases by simultaneously selling fresh floating-rate securities backed by the same collateral - credits written under the U.S. Department of Education's now-expired Federal Family Education Loan Program. The lenders seeking to retire their auction-rate debt are mainly not-for-profit players, including Arkansas Student Loan Authority, Brazos Higher Education, Illinois Student Assistance and North Carolina State Education. Citi, RBS and UBS would likely underwrite their new deals, and would offer them broadly to investors. That would set the arrangements apart from some past exchange programs in which issuers have simply swapped out bondholders' auction-rate positions for new floating-rate paper. So just how much is issuance set to rise Underwriters expect to see $5 billion of student-loan securitizations hit the market during the first three months of 2011, driven largely by refinancings of auction-rate paper. That compares to... http://www.abalert.com/headlines.php?hid=148319 Two bond brokers are re-forming a short-lived firm they disbanded to join NewOak Capital. James Colonias and Ron Yung, who led a capital-markets division that NewOak shuttered a month ago, launched the new incarnation of their Vesper Capital in the past few weeks. They're now interviewing prospective employees, with the intent of hiring 6-10 sales professionals, traders and analysts for the Maplewood, N.J., operation over the next 4-6 months. The prospective recruits include what the firm describes as a high-ranking collateralized debt obligation specialist. Once fully up and running, Vesper would trade mortgage bonds, commercial mortgages, CDOs and unusual asset-backed securities like those underpinned by insurance-related cashflows. The shop also offers advisory services. For instance, it's helping an undisclosed bank restructure and recapitalize. A bond-valuation component is under consideration as well. Vesper has struck an agreement to clear its bond trades through Atlanta brokerage IFS Equity, while arranging to use a separate firm's computer systems to trade commercial mortgages. The original version of Vesper, based in Morristown, N.J., shut down when Colonias and Yung moved to NewOak in January with colleagues Tom Caton, Ervin Pilku, Sean Smith and Bruce Strengberg. They became the core of NewOak's capital-markets area. Around midyear, however, Colonias and Yung began a process that saw them break off from NewOak while continuing to function as an affiliate of the firm. The apparent plan was to... http://www.abalert.com/headlines.php?hid=148232 Asset-management giant BlackRock is taking steps to become an issuer of mortgage-backed securities. The bond sales would mark the exit-strategy phase of a plan by the $3.4 trillion shop to begin buying newly written jumbo home loans from pre-qualified originators. The resulting deals would start at $200 million to $250 million. The effort is being led by former Wachovia securitization chief Randy Robertson, who joined New York-based BlackRock in April 2009 to help lead a unit that buys structured products. Like other potential issuers, BlackRock isn't likely to pull the trigger on its first transaction until pending regulatory changes come into sharper focus. For example, the firm is awaiting the outcome of proposals that would affect risk retention, disclosure rules and rating-agency liability. The regulations quot;keep morphing, and nothing's final,quot; one investment banker said. And in any case, it will take time to amass a sufficiently large pool of bond collateral. BlackRock intends to finance its mortgage purchases through its BlackRock Mortgage Investors Master Fund, whose current investments are focused on distressed home-loan bonds. In assembling its securitizations, BlackRock plans to implement multiple safeguards to reassure investors concerned about loan-underwriting standards. For starters, the mortgages will be written to BlackRock's specifications. Then they'll undergo due-diligence reviews before the firm commits to any purchases. And servicing will be handled by outside... http://www.abalert.com/headlines.php?hid=148120 Samp;P has proposed new wording for the paperwork underwriters must sign when hiring it to rate mortgage bonds - a change that could help the agency resolve a standoff with those institutions. The moves revolve around a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that makes it easier for investors to sue rating agencies for fraud. Concerned about their potential liability, Moody's, Samp;P and Fitch took steps earlier this year to amend their quot;engagement lettersquot; with language explicitly protecting them from the directive, known as Section 933. When Samp;P began circulating its revised letter in June, however, some leading mortgage-bond underwriters reacted by threatening a boycott of the agency. While the banks felt that Moody's and Fitch were being reasonable in their demands, Samp;P was seen as taking a hard line. The latest draft of Samp;P's proposed engagement letter, which began making the rounds this week, appears to have largely addressed the concerns of underwriters. The agency is now fielding feedback from the banks, including Bank of America, RBS and Wells Fargo, and the language could be finalized by next week. quot;The letter is a lot more Moody's-esque,quot; one source said. The release of Samp;P's new letter was the culmination of about a month of negotiations with banks, with Sifma mediating some of the talks. quot;We are aware of the concerns that some issuers have raised and we have been reviewing our terms and conditions accordingly,quot; an Samp;P spokesman said. Section 933... http://www.abalert.com/headlines.php?hid=148030 Buyers of subprime auto-loan bonds will soon see a new issuer in the market. Since launching in 2006, Exeter Finance of Irving, Texas, has planned to fund its lending activity via securitization. Indeed, the firm's partners all previously worked at the former AmeriCredit, the most active issuer of subprime auto-loan paper. But the plan was interrupted by the credit crisis. Now, a combination of a swelling loan portfolio and tightening spreads has Exeter gearing up to issue its first deal, most likely in the second quarter of 2011. The senior-subordinate offering is expected to weigh in around $100 million. Exeter plans to return to the market with a second offering before the end of 2011, then become a routine issuer at a rate of about one deal per quarter. Exeter already has talked to several banks about underwriting the deals. Wells Fargo is supplying a credit line that Exeter has been using to fund its loans since May. And Exeter's principals - Sam Ellis, Mark Floyd, Richard Frunzi, Daniel Parry and Kenneth Wardle - have longstanding relationships with securitization bankers who worked at Wachovia, which now is part of Wells. Exeter's loan portfolio currently encompasses about $130 million of credits. Once it establishes a securitization program, the company expects to increase its lending volume in part by expanding beyond the 11 states where it currently does business. It also plans to add staff. Exeter's business stands to get a boost from General Motors' pending purchase of AmeriCredit - a deal that is... http://www.abalert.com/headlines.php?hid=147937 Mortgage-bond buyers are losing faith in the accuracy of remittance reports, and some say the apprehension could soon factor into their investment strategies. Remittance reports, distributed monthly by securitization trustees, are supposed to provide routine snapshots of the cashflow-collection and distribution activities of servicers. However, investors say there has been a rash of recent instances in which the reported data differed considerably from what actually happened - making it impossible to determine values for their holdings. Frustrated with what they consider insufficient efforts by servicers to address the discrepancies, certain buysiders are even grumbling that they'll direct their money elsewhere. Should they take such steps en masse, the conflict could undermine both recent gains in the secondary-market values of mortgage bonds and plans by issuers to bring new deals to market. In fact, some are suggesting that flawed remittance reports already have emerged as an obstacle to the mortgage-bond sector. quot;It's a real mess. I wouldn't be surprised if some investors start moving into other sectors altogether. I know I've been thinking about it,quot; one buyer said. quot;It's just become impossible to rely on these reports.quot; Servicers for private-label mortgage securitizations have always released remittance reports, typically on the 25th of each month. But the documents only began to receive widespread attention as the real estate market unraveled in 2007 and investors sought m... http://www.abalert.com/headlines.php?hid=147837 JVB Financial has shown the door to its New York staff, less than a month after the broker-dealer agreed to sell its operations to Cohen amp; Co. Initially, Cohen said it would sign three-year employment contracts with all 82 of JVB's staffers, most of whom work in the firm's Boca Raton, Fla., headquarters. But within two weeks of striking the deal on Sept. 14, Philadelphia-based Cohen decided to shutter the shop's New York outpost and dismiss the office's entire workforce. The group encompassed about a dozen salesmen focused on institutional clients, along with a few traders. Cohen apparently saw more value in JVB's main trading desk in Boca Raton. quot;They found some overlaps in trading and sales,quot; a former member of JVB's New York team said. JVB trades a range of credit instruments, including asset-backed securities, mortgage bonds and other structured products. While the firm is an established player in the fixed-income market, it was only last year that it opened a New York office in an effort to attract more business from Wall Street banks and other large institutions. To lead the charge, the shop hired former Morgan Keegan executive Stephen DiTursi as a managing director and member of its board. DiTursi was among those targeted for layoffs in recent weeks, though some staffers apparently quit before getting pink slips. Also gone are senior vice president Chris Glacken, who specialized in mortgage-bond trading, and senior sales executives Juliana Attwood, Aaron Fuchs, Victor Silano, Larry Sodokoff, Phil... http://www.abalert.com/headlines.php?hid=147734 Securitization specialists still aren't sure what to make of one major aspect of the FDIC's Sept. 27 quot;safe harborquot; ruling. An apparent grandfather clause in the long-awaited directive seems to prevent the FDIC from seizing securitized assets - primarily credit-card accounts - from existing securitization vehicles in the event of an issuing bank's bankruptcy. And the protection would extend to paper sold through those entities in the future. However, some don't read it that way. At issue is one of the key facets in an ongoing debate over planned revisions to the FDIC's safe-harbor rules, which spell out whether securitization pools are ringfenced from banks' other debts. Morrison amp; Foerster attorney Jerry Marlatt said the FDIC's language can be interpreted to support the grandfather-clause theory. However, he added that the wording also can be understood to mean banks must abandon the vehicles used for their outstanding securitizations and set up new trusts if they want continuing safe-harbor protection - the stance industry players initially thought the FDIC would take. Should existing securitization vehicles be grandfathered, it would come as welcome news to banks that use such entities to fund their lending businesses. The FDIC, meanwhile, hasn't confirmed if that actually is the case. Mayer Brown's Jason Kravitt is among a growing group who see no ambiguity in the rules, maintaining that the FDIC has created an out for existing securitization vehicles. So is Deutsche Bank researcher Katie Reev... http://www.abalert.com/headlines.php?hid=147642 Look for Lloyds Banking and Nationwide Building Society to race out securitizations of fresh U.K. mortgages, now that RBS has placed a huge transaction at some of the lowest yields since the onset of the credit crisis. Both Lloyds and Nationwide began talking to investors early this week to gauge their interest in possible deals, although both lenders wanted to see how RBS' amp;8364;4.7 billion ($6.3 billion) offering would price before pulling the trigger. When the RBS bonds sold on Sept. 22, Lloyds and Nationwide liked what they saw. Now, market players are looking for the two companies to come out with official offerings in a matter of days. Each is expected to total $2 billion to $3 billion. The issues would add to a flow of mortgage-bond offerings that has been building across Europe this year, as lenders in the region respond to falling funding costs and growing financing needs. U.S. bankers also were watching the RBS transaction, hoping that a positive result would help rekindle still-moribund deal production among their clients. quot;Any good news over there bodes well for us here,quot; one banker in the States said. Investors have shown more appetite for European mortgage deals than comparable U.S. products, largely because the quality of the underlying credits is seen as higher. Since the start of this year, issuers have completed 19 securitizations of U.K. mortgages with a combined face value of $38.1 billion, according to Asset-Backed Alert's ABS Database. U.S. lenders have yet to pl... http://www.abalert.com/headlines.php?hid=147528 Mortgage-bond values are back on the upswing, with market players forecasting gains of 3-5 cents on the dollar by yearend. As trading faded in late August, the prices of non-agency home-loan securities retreated by an average of one cent on the dollar. But those losses were quickly recovered as secondary-market sales picked up during the first week of September. Another one-cent rise followed this week, driving values to their highest levels of the year. Now, market players foresee the gains continuing until yearend. The factors driving prices now are similar to those at work prior to August's brief swoon - chiefly, demand exceeding supply. As the year has progressed, the volume of bid lists circulating each week has dropped while investor interest has grown. Indeed, the weekly volume of paper posted on quot;bids-wanted-in-competitionquot; offerings exceeded $3 billion on several occasions earlier this year. But the weekly average has recently dropped to about $1.6 billion, according to data compiled by Jefferies amp; Co. trader Jesse Litvak. This week stands to see a higher volume. More than $1 billion of private-label mortgage paper traded on Sept. 13 alone, although bid-list sizes already were beginning to shrink in the following days. Meanwhile, some large money managers are using capital that previously might have gone toward equity investments to buy mortgage securities. That's because some of their clients are getting tired of settling for subpar stock-market returns. quot;Given the supply-and-demand situation, I... http://www.abalert.com/headlines.php?hid=147417 A growing number of investors want to cash out of bonds they bought with financing from the Federal Reserve's Term Asset-Backed Securities Loan Facility. The reason: The bondholders feel the securities have reached their maximum values, meaning now is the time to sell and repay their TALF debt. Anything left over would be theirs to keep. Indeed, several bid lists of $150 million to $300 million that circulated over the past two weeks were heavy with TALF-eligible paper - with those issues commanding prices as high as 6 cents over par. And industry participants expect the pattern to continue in the coming weeks. The Fed offered its first round of TALF financing in March 2009 in an attempt to stir up demand for asset-backed bonds, and thus increase production of those deals' underlying credits. The values of qualifying securities have increased substantially since then. For example, one of the program's first issues was a three-year credit-card deal from Citigroup that priced at 175 bp over Libor. Now comparable bonds with top ratings are changing hands at 20-25 bp. But they've been around that level for a while, leaving many bondholders convinced that it's time to take profits. quot;There's a decent amount of price appreciation that you have had in there, and there's no real additional upside,quot; one investment-bank researcher said. The willingness of buyers to take on the paper, meanwhile, in part reflects a recent shortage of new issues (see article on Page 1). In something of a twist, supply dropped... http://www.abalert.com/headlines.php?hid=147346 Opposition from other investors has stymied efforts by Vanquish Capital to remove New York Life as manager of two collateralized loan obligations. Working via a hedge fund called VCG Special Opportunities Master Fund that invests primarily in collateralized debt obligations, the Delray Beach, Fla., firm owns a majority of the junior-most notes from the issues: Flatiron CLO, 2003-1 and 2004-1. With those securities come the rights to boot New York Life as manager without cause. But there's a catch, as senior investors have to sign off on the appointment of a new manager. And that's something they so far have proven unwilling to do. Vanquish had set out in late May to remove New York Life, with the intent of transferring the management assignments to Commercial Industrial Finance Corp. of New York. The campaign lasted until Aug. 11, when most of the senior noteholders in the 2004 transaction voted against the request. The 2003 deal never made it to a vote. quot;We're evaluating what our next steps will be,quot; Vanquish chief investment officer Don Uderitz said. Vanquish decided to take action against New York Life after the 2004 CLO missed a quarterly equity payment in late 2009. Uderitz said CIFC has never had a deal fall below minimum over-collateralization levels, the point at which equity installments are cut off. It is estimated that more than half of CLOs missed equity payments in 2009. Another source said CIFC has indeed developed a reputation as an equity-friendly manager by keeping payments flowing to its... http://www.abalert.com/headlines.php?hid=147212 Arch Bay Capital and Kondaur Capital are among the leading bidders for a large portfolio of nonperforming mortgages that Flagstar Bank is shopping - assets the shops are eyeing as future bond collateral. The activities of Arch Bay and Kondaur are of particular interest to market players, as the firms have been behind two of the only new home-loan securitizations in recent memory. Both submitted offers on large chunks of the Flagstar portfolio, and are now conducting due-diligence reviews ahead of final bids. J.P. Morgan is brokering the sale, and hopes to complete the process in the next 30 days. The Flagstar loans are viewed as a strong fit for Arch Bay and Kondaur, which both specialize in buying troubled loans and then working with borrowers to rehabilitate the credits - with securitization among their favored exit strategies. Fortress Investment, Goldman Sachs, Lone Star and Morgan Stanley have looked at the package as well, also with securitization in mind. The Flagstar book is among the largest distressed-mortgage portfolios to make the rounds lately, as many offerings in the sector have totaled less than $10 million. It consists of prime-quality, alternative-A and subprime loans in the hard-hit California and Florida markets. The Troy, Mich., bank services $325 million of the accounts, with Carrington Mortgage collecting on the other $275 million. While a number of companies have been working on issuance plans, the mortgage-securitization scene has been largely dead aside from recent deals... http://www.abalert.com/headlines.php?hid=147098 A clause in the SEC's proposed overhaul of Regulation AB is suddenly causing alarm among asset-backed bond issuers, who say the measure could kill the appeal of shelf entities. The main cause for concern: For an issuer to conduct a shelf offering, a top executive would have to sign statements essentially assuring bondholders that payments will be made in full and on time. Bank of America, J.P. Morgan, Wells Fargo and other issuers have submitted comments to the SEC strongly opposing the requirement. quot;We are concerned that the language of this mandated certificate would essentially require the depositor's [chief executive] to act as a guarantor of the principal payments on the ABS,quot; Wells said in a statement filed on the SEC's Aug. 2 deadline for public comment. quot;No single person could predict all of the events that may occur that could impact the performance of the underlying collateral.quot; Indeed, market players said the proposal could seriously undermine the proposed Reg AB amendments, which are designed to increase transparency among securitizations. The thinking is that if forced to certify the performance of their SEC-registered deals, many issuers would opt for private placements instead. Others might set up new vehicles for each of their transactions, rather than drawing on pre-registered shelves. But that would be a costly and time-consuming process that ultimately could diminish the flow of public offerings. Legal experts say there's no precedent for the... http://www.abalert.com/headlines.php?hid=146983 Mortgage-bond professionals are taking a recent uptick in whole-loan trading volume as an encouraging sign for their side of the business. After a number of fits and starts, market players think the latest increase in loan sales could be what finally lifts securitizations of non-agency mortgages out of their issuance slump. That's because it promises to ease one of the main hindrances to dealflow: a lack of available collateral. The activity has been driven by a number of key players. Small banks have sought to sell their holdings. Wall Street institutions, including Bank of America, Credit Suisse, Deutsche Bank and Goldman Sachs, have stepped in to offer financing. And new investment vehicles are taking shape at Biltmore Capital, Dreambuilder Investments, MCM Capital and elsewhere. The sales have involved both performing and nonperforming mortgages. In many cases, they are coming from banks that chose to sit on those assets as values declined earlier in the financial crisis - but now feel their financial situations have improved to the point where they can afford to crystallize losses by unloading the holdings. Many of the pools total $5 million to $30 million, although some have been as large as $300 million. quot;You're starting to see smaller pools being sold by some of the smaller banks,quot; said Elton Wells, who heads the structured-product division of illiquid-asset exchange SecondMarket. Meanwhile, the likes of BofA, Credit Suisse, Deutsche and Goldman have shown an increased willingness... http://www.abalert.com/headlines.php?hid=146885 Symphony Asset Management has revived a $500 million collateralized loan obligation that it pulled from the market in April, with a new bookrunner. Now Goldman Sachs is set to lead the deal, rather than Bank of America. Marketing is expected to begin in the coming weeks, with hedge fund manager Magnetar Capital considering buying the issue's equity tranche - as it did for some CLOs issued by Symphony in 2008. The offering's resurrection comes amid an increasing flow of CLOs, which had fallen off amid the global financial crisis. For example, Apollo Management has retained J.P. Morgan to run the books on an offering that's due out later this year. And Deutsche Bank is marketing a $350 million transaction for Garrison Investment. Meanwhile, BofA is circulating offering documents for a $300 million CLO from Tetragon Financial affiliate LCM Asset Management. It's even seeking bids on the equity tranches, in a departure from recent trends that have seen issuers or affiliates keep those pieces. As for Symphony, it's unclear what caused the San Francisco firm to pull its deal and switch bookrunners. Initially, market players cited unfavorable pricing - a factor compounded by nervousness about financial reforms including the then-developing Dodd-Frank Wall Street Reform and Consumer Protection Act. There also has been speculation that Symphony became uneasy about the legal outlook for collateralized debt obligation managers in general because of an April 16 lawsuit in which the SEC accused... http://www.abalert.com/headlines.php?hid=146755 Europe's fiscal woes are propelling covered-bond issuance toward record levels. Funding costs are at the core of the trend. With much of Europe facing prolonged financial and economic troubles, investors are demanding higher yields on traditional home-loan securities and unsecured debt than they are willing to accept on covered mortgage bonds - making covered bonds more appealing for issuers. Earlier, Societe Generale researcher Jose Sarafana predicted that issuers would distribute amp;8364;164 billion ($210 billion) of covered bonds worldwide in 2010 - the bulk in Europe. But with year-to-date issuance volume already at amp;8364;126 billion, that estimate should be easily surpassed. In fact, Sarafana now says he expects the 2010 tally to come in at amp;8364;180 billion to amp;8364;190 billion, slightly higher than the amp;8364;179 billion record set in 2006 and well past the 2009 count of amp;8364;130 billion. At this point last year, volume was at amp;8364;47 billion. While covered-bond activity has been running ahead of expectations for months, Europe's fiscal troubles are adding more thrust. And the projections could climb even higher if the economy or sovereign-debt outlook deteriorates. In the region's latest sign of instability, Moody's downgraded Portugal's sovereign-debt rating two notches to quot;A1quot; on July 13. Why covered bonds Investors like the fact that the instruments are backed by specific pools of cashflows, which can make them safer than unsecured debt. Meanwhile, traditional mortgage-backed securities... http://www.abalert.com/headlines.php?hid=146644 Securitization professionals are already gearing up for the next battle in Washington - the overhauls of Fannie Mae and Freddie Mac. With the Dodd-Frank Wall Street Reform and Consumer Protection Act on the verge of final passage, there has been increased speculation about whether lawmakers' next project will be setting a course for the troubled mortgage agencies. The thought is that a big opportunity for private-label players could be in the making. Why There's a good chance Congress will reduce the maximum size of government-guaranteed Fannie and Freddie loans from the current limit of $729,750. That would reclassify a large swath of would-be agency loans as jumbo credits, which when securitized provide higher yields for investors and bigger fees for investment banks. While they have taken little if any action yet, investment banks that issue and manage jumbo-loan deals would have the most to gain - and thus are seen as likely to play leading roles in lobbying for lower loan limits. Such a possibility is particularly intriguing in light of a provision in the Dodd-Frank bill that would allow banks to sidestep new risk-retention requirements if they use quot;qualified residential mortgagesquot; as collateral in their securitizations. The exact specifications for such loans will be determined by a new regulatory panel established under the act, which President Obama is expected to sign later this month. However, it's already clear that qualified mortgages won't require the imprimatur of Fannie or... http://www.abalert.com/headlines.php?hid=146533 The FDIC is working with lawmakers to draft a new covered-bond bill, just days after the agency blocked efforts to include such a measure in Congress' financial-market reforms. Those in on the talks include Rep. Scott Garrett (R-N.J.), a strong proponent of legislation that would facilitate the creation of a covered-bond market in the U.S. A new measure could be ready in the next few months. While Garrett and others were eager to make covered-bond regulations part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, FDIC officials were able to shoot down that component just hours before a final version of the package emerged June 25. The reason: The insurer felt the proposed measure would have come too close to placing it in the role of a bond guarantor. It's not that the FDIC would have to take over investor payments if an insured bank were to fail. Rather, the worry stems from how covered-bond terms require issuers to replace poorly performing collateral with stronger assets - meaning that in a seized-bank scenario, the FDIC would essentially have to absorb bad accounts while surrendering better ones. quot;The FDIC as receiver shouldn't bear the risk that should appropriately go to bondholders,quot; said Michael Krimminger, the FDIC's special advisor for policy. Nonetheless, the FDIC does want to see a U.S. covered-bond market emerge. Its discussions will revolve in part around how to ensure asset-replacement requirements don't hamper bank liquidity. Of particular concern is that another credit crisis... http://www.abalert.com/headlines.php?hid=146434 Asset managers in the U.S. are exploiting what they view as a rare opportunity to buy triple-A-rated mortgage bonds at double-digit yields. The play involves securities from issuers in Ireland, Portugal and Spain, where values have been depressed by broad fiscal and economic woes. Those in on the action include BlackRock, Fidelity Investments, Pimco, State Street Global and Vanguard, along with some smaller shops. The strategy is driven in part by a fear of missing out on cratering prices - something many investors experienced when the values of U.S. mortgage bonds fell to all-time lows in late 2008 and early 2009. The thought is that prices in Ireland, Portugal and Spain will eventually climb back, just as they have been doing in the States. In fact, the pattern may already be emerging. Mortgage-bond values in Portugal, Ireland and Spain began sliding in April as worries about the nations' abilities to repay their sovereign debt roiled trading in a range of financial instruments. MBS prices then improved a shade about a month ago, when the U.S. players started jumping in. The window of opportunity could close quickly. Market players say more U.S. investors are interested, driven by an opinion that their European counterparts have essentially thrown out the baby with the bathwater. quot;They see their chance to get in at distressed prices,quot; said Elton Wells, head of structured products at illiquid-asset exchange SecondMarket. Some of the shops already taking part in the trade have been able to flip their... http://www.abalert.com/headlines.php?hid=146318 (SEE CORRECTION BELOW) Finacity is working on two term securitizations for clients in Mexico. Both deals are expected to hit the market in the next few months. The first, of undisclosed size, would be backed by trade receivables. The second would be backed by quot;microloansquot; to individual borrowers and is set to total $300 million. Finacity's core business is structuring and arranging trade-receivables securitizations for clients outside the U.S., both in the term and commercial-paper conduit markets. The microloan issue would be its first in the asset class. Microloans are high-interest-rate credits extended to poor business owners in developing nations, typically ranging from a few hundred to a few thousand dollars. Kiva, a company that matches lenders with borrowers, claims the credits have a repayment rate of 98. While issuers have completed a few microfinance-loan securitizations in the past, starting with a 2004 deal from Geneva-based BlueOrchard, the asset class has never been particularly active. Finacity's offering would be backed by 2 million loans with an average size of $150. Samp;P is reviewing the transaction, but has yet to indicate whether it will grant a rating that would make it financially viable. The planned deals come from a pipeline that Finacity chief executive Adrian Katz described as the company's largest ever, with 12 issues in various stages of development. The Stamford, Conn., operation expects its overall volume of term and conduit issues for 2010 to top last year's total of $15 billion - w... http://www.abalert.com/headlines.php?hid=146205 Broker-dealer Finacorp Securities, which made a big push into mortgage-backed securities amid the credit crisis, closed its doors this week. It's unclear why the Irvine, Calif., firm suddenly shut down after 16 years as a fixed-income broker. Some market players speculated Finacorp was unable to raise enough capital to establish a viable inventory of mortgage bonds - the same problem that plagued now-defunct Utendahl Capital. Finacorp's operations manager, Shiva Naby, confirmed the closing but declined further comment. The firm had a staff of about 65. Ed Prado founded Finacorp in 1994 to sell fixed-income products to small and mid-sized institutions. The firm was among a number of mid-tier brokerages that set their sights on the mortgage-bond market beginning early last year, motivated both by a plethora of distressed-investment opportunities and a wide availability of securitization talent cut loose by the big banks. In March 2009, Finacorp hired former RBC Capital mortgage-bond traders Mike Sullivan and Mike Wier, along with ex-RBC sales specialist Mike Lingvall. The three worked in Finacorp's Minneapolis office under mortgage-backed securities chief Jack Hussian. Another former RBC trader, Steve Cutri, also was brought in around the same time. Finacorp's mortgage-bond team additionally included Stephen Jencks, who previously spent years at Prudential Financial. Also part of that group was former GMAC executive Ronnet Glezer. Utendahl, a New York brokerage whose specialty was... http://www.abalert.com/headlines.php?hid=146095 Ken Mulford, best known for his role in securitizing subprime mortgages at the now-defunct Ameriquest, arrived at UBS this week - the latest sign of the bank's ambitions to rebuild its once-active securitization-banking business in the U.S. Mulford started June 1 as a managing director reporting to Frank Byrne, the former Deutsche Bank securitization chief who is leading efforts to re-establish UBS' presence as an underwriter and issuer of structured products Officially, Mulford fills a vacancy created when executive director Patrick Fitzsimonds left the bank to join Goldman Sachs. But market players said there will be a new aspect to his role: helping to resurrect UBS' dormant mortgage-financing business. Within the next 6-12 months, UBS wants to ramp up originations of U.S. home loans with an eye toward selling or securitizing the credits. That's where Mulford comes in. From 2003 to 2007, he led Ameriquest's loan-disposition group, which routinely securitized subprime mortgages and home-equity credits or sold them as whole loans - often to buyers that packaged them into their own securitizations. Mulford also could play a role drumming up underwriting business from mortgage lenders, a craft he practiced at Citigroup before joining Ameriquest. He is stationed in UBS' Stamford, Conn., office. Mulford has held structured-product positions at a number of companies, including a stint at Merrill Lynch. He then moved to ACA Financial, where he briefly led a team that bought asset-backed securities ... http://www.abalert.com/headlines.php?hid=145967 Several mortgage REITs are creating securitization-structuring staffs, with an eye toward issuing bonds that they would retain. Those on the hunt include MFA Financial; NewCastle Investment, run by minority owner Fortress Investment; and Starwood Capital's Starwood Property Trust. While Newcastle has had a presence as a structured-product issuer before, the REITs' main functions in the sector have been as investors. Their apparent strategy now is to buy pools of new and seasoned home loans for securitization, and then keep most of the resulting bonds while distributing the rest to outside investors. Indeed, word was circulating a few weeks ago that a number of REITs were looking into the possibility of becoming issuers. The reason The operations want to keep buying mortgage bonds, but see a do-it-yourself approach as the only way to ensure an adequate supply of acceptable paper. Some cite a lack of near-term offerings from Wall Street banks. Others would be hesitant to buy from those institutions anyway, after getting burned on earlier deals that went bad. quot;We would be happy to buy those from others, if we could be comfortable that we could buy as good a quality as we can manufacture ourselves,quot; one REIT official said. A number of other REITs are hiring securitization-structuring professionals for similar initiatives. They include Annaly Capital unit Chimera Investment, which told investors a few weeks ago that it wanted to start issuing. Outside the REIT world, Pimco has been gearing up for an issuance... http://www.abalert.com/headlines.php?hid=145870 New York brokerage firm BTIG has hired industry veteran Dan Castro to help build up its structured-product sales-and-trading business. Landing Castro is something of a coup for BTIG, a longtime equity-market player that has been working for the past 18 months to gain a foothold in the securitization industry. Indeed, sources said his arrival gives the firm instant credibility among market makers and investors. Castro is best known as the one-time head of asset-backed securities research at Merrill Lynch, though for the past five years he has worked on the buyside as a structured-product portfolio manager. He starts at BTIG on May 24 as a managing director charged with setting up a unit dubbed structured-finance analytics and strategy, reporting to global fixed-income co-head John Purcell. In addition to analyzing bonds and writing research reports, Castro's team will work closely with BTIG's structured-product sales and trading operations to build relationships with other market players. Castro himself will play a key role advising institutional investors on trades and portfolio management. He will begin staffing his new unit with three former colleagues who haven't yet been disclosed. They are expected to join BTIG shortly. Soon after, a quantitative analyst will join the team to develop trading methods. Castro started as a structured-finance analyst at Citicorp in 1986. He then spent four years at Moody's before joining Merrill, where he worked for 14 years. After leaving... http://www.abalert.com/headlines.php?hid=145749 It's proving more difficult than anticipated for banks to issue bonds backed by seasoned home loans. Bank of America officials have told industry players in recent weeks that they are turning pessimistic about their ability to securitize pools of older mortgages gathered from other originators - including credits inherited with the bank's 2008 purchase of Countrywide. Sources also suggest that J.P. Morgan could be in a similar position with accounts from Washington Mutual. Some smaller issuers are expressing doubts as well. Oddly, the culprit is a set of collateral-disclosure requirements set forth Dec. 15 as part of the American Securitization Forum's Project Restart - a program that seeks to improve conditions in the beaten-up market for non-agency mortgage bonds through improved reporting standards. In the following months, a consensus emerged that the sector's first steady supply in years would come from a growing pipeline of deals backed by older credits. The belief was that it would be fairly simple to bundle those so-called legacy credits into securitization pools, as long as buyers were willing to venture back into the market. But as banks and other lenders sift through their existing mortgage portfolios, they're realizing that it will be impossible in some cases to meet the ASF standards. The upshot is that seasoned-loan deals will likely amount to a mere trickle that will take longer to develop than initially thought. The difficulties stem from loan-specific quot;representations and warrantiesquot; that ... http://www.abalert.com/headlines.php?hid=145612 Mortgage bonds in the U.K. and The Netherlands could be headed down the same path as similar products issued in Europe's shakier nations. So far, secondary-market prices for paper backed by U.K. and Dutch home-loan pools have more or less been holding steady as fiscal woes drag down the values of comparable instruments issued in Greece, Spain and Portugal. But market players see a contagion taking hold in the coming weeks. Some suggest secondary-market spreads for U.K. and Dutch mortgage bonds will widen by 50-100 bp. Others see those projections as overstated, but still think values will drop to some degree. quot;That's a disaster scenario,quot; one London-based trader said. Spreads on the five-year senior portions of U.K. and Dutch issues had already widened by 20 bp at the end of April, as it became clear that Greece wouldn't be able to make good on debt payments. They regained the lost ground by May 3, however, and now are trading at 120-140 bp over Euribor. Market players keep an especially close eye on the values of mortgage bonds issued in the U.K. and The Netherlands, as they are considered benchmarks for other structured-finance instruments in Europe. The thought is that it's only a matter of time before their prices drop again, as has already happened for other debt and equity products in the region. quot;I think it has to, I don't see any reason why it shouldn't,quot; one broker-dealer executive said. Equity and debt markets worldwide were hammered this week by concerns about the... http://www.abalert.com/headlines.php?hid=145515 Investors are chattering about an apparent resurrection of State Street Global's buyside presence. The Boston firm showed interest in a $1.1 billion auto-loan deal that Ford priced April 21. And it sniffed around a $350 million securitization of dealer-floorplan loans that Ally Bank completed two days later. By looking at the offerings, State Street has stoked speculation that it is growing more bullish on asset-backed bonds after retreating from such products amid the global financial crisis. The thought is that the company is bidding via its U.S. Asset Backed Index Strategy, a collection of accounts that seek to mimic the Barclays Capital Asset-Backed Securities Index. Of course, plenty of other investors have warmed up to asset-backed bonds lately. So why is State Street getting so much attention Its vehicles also offer securities-lending services - placing them among a class of once-active buyside operations whose return is seen as crucial to the market's recovery. Securities lenders, including asset managers like State Street and pension systems like Calpers and Ohio Public Employees, see the operations as a way to build up pools of low-risk investments that they can milk for additional returns by loaning them out for use in repurchase agreements. State Street was holding some $32 billion of asset-backed bonds in early 2007, just before it stepped back from the market. The Ford and Ally deals appear to fit State Street's former profile as a conservative investor in mainstream transactio... http://www.abalert.com/headlines.php?hid=145387 Deutsche Bank intends to expand its role in the student-loan industry - both by purchasing an education lender and by picking up loan portfolios from companies that plan to exit the rapidly evolving marketplace. As the Obama Administration moves closer to killing subsidies offered via the Federal Family Educational Loan Program, all but a handful of companies are expected to get out of the education-funding business over the next 18 months. That, in turn, should lead to a wave of acquisitions in which large banks and finance shops would increasingly step in to manage sizable loan portfolios. Some $250 billion of student loans are already estimated to be on the block. Most are FFELP loans. Unsubsidized private credits are also in the mix. In addition to Deutsche, Bank of America and J.P. Morgan are interested in increasing their presence in the education-lending arena. Among lenders, Sallie Mae and Nelnet have also indicated they want to increase their market shares as smaller players pull back. The elimination of FFELP means the U.S. Department of Education will become the sole issuer of government-guaranteed student loans. A small percentage of lenders are responding by shifting their focus to private loans. But other than four shops that have received contracts to service government pools - Sallie Mae, Nelnet, Great Lakes Education and Pennsylvania Higher Education Authority - most others will likely sell their portfolios and get out of the business. quot;If you're a bank with a $10 billion servicing... http://www.abalert.com/headlines.php?hid=145269 Bank of America has disbanded its special sales team, which it put together at the height of the credit crisis to dump devalued structured products. Members of the so-called structured portfolio group, who report to Geoffrey Greener, will soon return to their previous seats on the bank's regular trading desks in New York. Greener, meanwhile, is being reassigned to an undisclosed new post. The moves mark an end to a massive selloff of troubled structured products that were sitting on BofA's balance sheet. They also signal that the structured portfolio group succeeded in unloading a critical mass of that paper, some of it acquired via the bank's yearend 2008 takeover of Merrill Lynch. At the same time, improving credit-market conditions have made it much easier to sell structured products than it was not long ago. And that's something BofA plans to continue doing on a much-reduced scale. quot;Those assets are barely as distressed as they once were because prices have risen so much,quot; one trader said. After the credit market took a turn for the worse in late 2008, BofA cordoned off billions of dollars of structured products and other distressed securities in a special-purpose vehicle that served as a sort of quot;bad bank.quot; The Charlotte institution then set up the structured portfolio group on the ninth floor of its investment-banking headquarters at One Bryant Park in Midtown Manhattan. The team's sales came mainly last year. Among them: a $2.5 billion portfolio of collateralized loan obligations and $1 billion of... http://www.abalert.com/headlines.php?hid=145169 First Marblehead is working on a novel securitization backed by yet-to-be originated student loans. Deutsche Bank is helping the Boston lender arrange the transaction, which would aim to address a conundrum facing issuers in a range of asset classes: How do they raise enough capital to expand their businesses when banks won't offer them credit lines at affordable interest rates Typically, a student-loan company might use a warehouse facility to build up an inventory of loans that it would then securitize. But with banks reluctant to write lines of credit these days, First Marblehead is skipping right to the securitization phase of its funding strategy. To that end, its deal serves as something of a cross between a warehouse line and a traditional asset-backed securities issue. The transaction resembles a $50 million bond sale completed March 25 by Consumer Portfolio Services, a subprime auto lender in Irvine, Calif. In that privately placed deal, arranged by Cohen amp; Co., investors paid Consumer Portfolio up front based on a promise that the company would write the underlying loans according to certain parameters by yearend. Once all the receivables are in place, the securities will begin to amortize. By the time the deal closed, Consumer Portfolio had accumulated enough collateral to support $9.1 million of securities. While First Marblehead and Consumer Portfolio operate in different asset classes, they share a common thread: a history of relying on securitization for funding. First Marblehead... http://www.abalert.com/headlines.php?hid=145041 The market for European mortgage bonds is approaching a milestone in its recovery from the credit crisis. In the past few weeks, traders in the region have seen secondary-market prices for five-year home-loan securities with triple-A ratings increase to an average of 92 cents on the dollar from 89.5 cents. That works out to a spread of 110 bp over Libor for deals backed by U.K. credits and 108 bp over Euribor for Dutch pools. Now industry players are turning their attention to a amp;8364;700 million ($950 million) tranche of 4.9-year senior securities from a deal that Rabobank unit Obvion is set to price soon - saying the class could fetch a spread of less than 100 bp over Euribor. That's a key resistance level that hasn't typically been broken among benchmark five-year bonds since 2008, before the already-damaged financial market went into a tailspin. Obvion's deal, backed by Dutch mortgages, totals amp;8364;1 billion overall. It also includes a amp;8364;240 million senior piece with a shorter maturity that is expected to price around 80 bp over Euribor, along with amp;8364;60 million of junior securities that the Utrecht, Netherlands, lender plans to retain. Rabo and Societe Generale are serving as underwriters. The values of European mortgage bonds began climbing back from their credit-crisis lows several months ago, amid light open-market supply. Those gains were interrupted early this year as investors mulled the possibility that fiscal strains in Greece, Ireland, Italy, Portugal, and Sp... http://www.abalert.com/headlines.php?hid=144930 Support from central banks in Europe is still distorting worldwide securitization volume, but this time in a different direction. According to preliminary figures from Asset-Backed Alert's ABS Database, issuers around the world placed some $120 billion of new asset-backed bonds, collateralized debt obligations and residential and commercial mortgage securities during the first three months of this year. That's a decrease of about 40 from the year-ago tally of $203.4 billion. The reason for the drop: Fewer issuers are retaining deals for use in European Central Bank and Bank of England repurchase facilities. Those programs had inflated new-deal volume in recent years as liquidity-strapped financial institutions tapped them as an outlet for massive amounts of loans. Now, declining use of the repo facilities has led to an exaggerated contraction in issuance totals. The pullback is partly attributable to efforts by the European Central Bank and Bank of England to scale back their repo support. It also reflects the fact that open-market conditions are far better than they were a year ago, when the global credit industry was paralyzed. Indeed, when deals retained for government-repo purposes are excluded, the year-to-date total would be around $50 billion - an increase of almost 60 from the March 2009 mark of $29.9 billion. Put another way, about 40 of this year's securitizations have been distributed among private-market sellers, compared to about 15 a year ago. As they were a year... http://www.abalert.com/headlines.php?hid=144833 American Express and Ford are shopping junior bonds they had to retain to facilitate securitizations conducted amid the global financial crisis, and other issuers are following suit. Until recently, subordinate paper was selling at such steep discounts to face value that it made no sense for issuers to sell retained inventories. Now, as investors become less risk-averse, the bid for junior bonds is on the rise - drawing Amex, Ford and others into the market. This week, for example, Amex circulated mezzanine notes from three credit-card securitizations: American Express Credit Account Master Trust, 2008-5, 2008-7 and 2008-9. The securities have a combined face value of $117.2 million. Ford, meanwhile, has been hawking subordinate bonds from auto-loan deals that priced last year. The efforts reflect a situation that arose as market conditions tanked in 2008 and 2009, rendering issuers of asset-backed securities able to sell only the senior-most portions of their deals at economical yields. To ensure continued access to the market, many kept the subordinate pieces of new transactions. Some also retained junior classes of offerings conducted under the Federal Reserve's now-expired Term Asset-Backed Securities Loan Facility, which offered government financing only to senior buyers. With asset-backed bond values now higher, thanks in part to the stimulating effects of TALF, issuers that have been sitting on retained bonds are starting to see opportunities to exit those positions and raise cash. quot;... http://www.abalert.com/headlines.php?hid=144709 The FDIC is speeding up efforts to sell home loans it has taken on from failed banks. Stifel Nicolaus and HSBC are separately preparing to pitch loan portfolios on behalf of the deposit insurer, adding to a string of so-called structured transactions it began conducting late last year. Those offerings, in turn, fit into a multi-pronged effort to shed a mix of bank assets seized since the 2007 credit-market meltdown. While market players have been anticipating the loan sales, they thought the process would bring gradual one-at-a-time liquidations. Instead, the Stifel and HSBC offerings would join two other portfolios that have already been making the rounds for about a month - with Stifel also leading one of those pitches and RBS handling the other. Why is the project moving faster than anticipated The FDIC expects the number of banks under its control to swell this year as more of the institutions eventually succumb to financial-crisis pressures, meaning it will need to make room for their mortgage holdings. The insurer has already taken 193 depository institutions into receivership since mid-2007. Some industry players see the total surpassing 450 this year. Stifel, HSBC and RBS were among a group of institutions designated by the FDIC last year to aid in the resulting home-loan sales. So were Barclays, Deutsche Bank, Keefe, Bruyette amp; Woods and Pentalpha. Stifel's next offering is expected to hit the market in the coming weeks. It will likely consist of some $1 billion of first- and second-lien loans, mos... http://www.abalert.com/headlines.php?hid=144634 Following a period of rapid growth, trading firm ICP Capital is suddenly grappling with a range of issues - including troubles in raising capital and retaining key personnel. Related tensions boiled over two weeks ago, when chief executive Thomas Priore got into a shouting match with lieutenant Carlos Mendez in the firm's New York headquarters. Mendez abruptly quit. Shortly after, Mike Flynn, Robert Roberto and Ed Steffelin headed for the door as well. ICP runs two main lines of business: a broker-dealer arm focusing on structured products and an asset-management division that works on collateralized debt obligations, operates funds and advises clients. Mendez had built the brokerage area into the company's most profitable component, while the asset-management unit has struggled under Priore's watch. It's unclear what specific issue triggered the altercation between the two, but it was just the latest in a series of setbacks for ICP. The firm has doubled its staff during the past 18 months to about 120 employees, but now faces trouble retaining some of the recent hires. A number of traders and sales specialists on the brokerage side signed on with the expectation that ICP would raise capital so it could build an inventory of structured products. So far, however, the firm has made little progress with that effort. A similar issue plagued Utendahl Capital, which hired a team of structured-product traders only to see most of them leave late last year after the New York firm failed to raise... http://www.abalert.com/headlines.php?hid=144486 Two Highland Capital partners are trying to purchase trust-preferred securities issued by a bank they partially own - shares that currently reside in the underlying portfolio of a collateralized debt obligation. The unnamed individuals, operating through an entity called Highland Capital Management Services, are angling to buy $15 million of NexBank securities from a Bear Stearns deal called Soloso CDO, 2007-1. They're offering to pay 12 cents on the dollar. The Highland partners are also offering almost $1.6 million of additional incentives to owners of Soloso's equity to permit the maneuver - taking advantage of a structural twist in which the issue's voting power lies in the hands of first-loss investors. In doing so, they could pit senior bondholders against subordinate classes. Like many investors in trust-preferred CDOs, Soloso's equity holders long ago stopped receiving payments due to weakened collateral performance. So it would seem they have nothing to lose by accepting the Highland partners' proposal. Owners of the issue's senior bonds, who stand to lose millions of dollars on the trade, decry the proposal as unethical and a violation of the spirit of deal documents. They do have some recourse though. The offer gives senior noteholders possible veto power, which a few have already exercised. Investors have until March 12 to weigh in, according to a Feb. 19 report from trustee Wells Fargo. The motivation of the Highland partners remains unclear. One source said the... http://www.abalert.com/headlines.php?hid=144389 Stanfield Capital is thinking about unloading the management assignments for 12 collateralized loan obligations. The firm has so far spoken to a few possible buyers in hopes of gauging interest in such an offering. If it moves forward, the effort would mark one of the largest in a string of similar sales that have taken place in the aftermath of the credit-market collapse. It would also eliminate a large chunk of Stanfield's business. Stanfield, which focuses on leveraged-loan investments, runs 17 collateralized debt obligations overall. The contracts it is currently pitching encompass 11 all-cash issues and one synthetic transaction backed by leveraged loans. The other six, underpinned by loans and perhaps other assets, could go up for grabs as well. CLOs had come to be an increasingly important part of Stanfield's business over the years. The New York firm, founded in 1998 by Stephen Alfieri and Christopher Jansen, used to have a hedge fund operation. But Chris Pucillo spun off that business in 2007 to form Solus Alternative Asset Management. Now Stanfield runs some $5 billion through various loan vehicles, of which $4.6 billion is in its CLOs. Separate accounts make up part of the remainder. Stanfield's move to pare back its CLO-management business comes amid a stream of similar offerings that has been growing in recent months, in part because many sellers no longer find the business appealing. For Stanfield's part, the firm apparently wishes to capitalize on a bounce-back in the values of CLOs from their credit-crisis... http://www.abalert.com/headlines.php?hid=144260 The Federal Reserve is increasing its scrutiny of banks that distribute bonds via its Term Asset-Backed Securities Loan Facility, on the eve of the program's expiration. The reviews, focusing on adherence to quot;know-your-clientquot; requirements among TALF agents, apparently kicked into high gear a few weeks ago as the Fed began a post-mortem on the program. Dealers found to be out of compliance will face audits and possible disciplinary actions from the central bank. The final round of monthly TALF financing is set to go out March 4. For dealers of eligible bonds, the amped-up Fed inquiries they are receiving ahead of that date are creating a sense of relief that the program has almost run its course. quot;I personally can't wait for TALF to end. Most of us are thankful there's only one round left,quot; one banker said, adding that he and many of his peers have been overwhelmed with paperwork related to the so-called KYC rules. He said the Fed's requests have gone beyond the information dealers might reasonably expect to supply. For example, some agents have been asked to report investors' electricity costs. Meanwhile, the fear of Fed audits and the negative publicity that would come with them is prompting many TALF agents to shut out what they call bottom-feeder investors from new offerings. Those shops include opportunistic buyers that formed over the last year. quot;It has become too risky to keep these guys in it for some agents,quot; one underwriting professional said. The reduced investor base likely explains why the most recent dose of... http://www.abalert.com/headlines.php?hid=144165 The American Securitization Forum's annual conference won't return to the Washington area if industry players get their way. This year's version of the event, quot;ASF 2010,quot; took place Jan. 31-Feb. 3 at the Gaylord National Hotel in Oxon Hill, Md. By the time it wrapped up, many of the summit's 4,400 registrants had come to the conclusion that a change of venue should be on the agenda for 2011. The main reason: Most feel the winter gathering should take place in a warmer climate, preferably somewhere with more places to entertain clients. So where would market participants prefer to go Many are calling for a return to Las Vegas, where the conference took place the four previous years. Some suggest Scottsdale, Ariz., where it was staged for two years before that as the successor to a long-running confab put on by Strategic Research Institute. ASF, meanwhile, has posted a brief survey on its Web site in which conferencegoers can weigh in on 16 possible cities for next year's conference. It's under the quot;Featured Eventsquot; listing at americansecuritization.com, and an e-mail version is slated to go out to 2010 attendees today. ASF executive director Tom Deutsch said the feedback he receives will ultimately determine next year's location, and that a decision is likely by the end of February. Arizona is already out of the running, however, as there are no hotels in the state that can house such a large assemblage. As for Washington, it didn't help that temperatures during this year's event never rose above freezing or... http://www.abalert.com/headlines.php?hid=144030 More credit-card bonds will mature in 2010 than in any prior year, but that doesn't mean issuers will be rushing to re-fund those obligations with new securities. According to Moody's, $100 billion of card bonds come due this year, up from $81 billion in 2009. In the past, that would have pointed to a corresponding jump in issuance as lenders sought to roll the underlying accounts into new deals. But not this year. Moody's estimates that only $50 billion of fresh credit-card securitizations will hit the market in 2010. That would register as an increase of less than 10 from last year's U.S. total of $45.6 billion, according to Asset-Backed Alert's ABS Database. Many of the factors limiting growth have long been on the minds of market players. First and foremost is the Jan. 1 implementation of the Financial Accounting Standards Board's FAS 166 and 167 guidelines. Those rules effectively ended off-balance-sheet treatment for securitized credit-card accounts, thus reducing the appeal of asset-backed bonds as a funding source. Many issuers have been exploring possible alternatives. Still-shaky economic conditions and steps by issuers to weed out weak borrowers have also cut into the volume of card debt outstanding, reducing the need for issuers to re-fund maturing securitizations. Some issuers plan to stay out of the market entirely. Continuing a stance it maintained throughout 2009, for instance, Capital One doesn't expect to issue heavily this year even as $9.9 billion of its asset-backed bonds come due. ... http://www.abalert.com/headlines.php?hid=143918 Dealer-floorplan lenders are preparing an onslaught of securitizations. The offerings are expected to hit the market in two big batches, one in the first week of February and the other in early March, in order to qualify for the two final monthly rounds of buyer financing available through the Federal Reserve's Term Asset-Backed Securities Loan Facility. TALF's next funding rounds go out Feb. 5 and March 4. Most of the upcoming deals would be backed by loans that help car dealers finance their inventories. Ford, which is typically among the most prolific issuers of such securities, is expected to be behind at least two of the transactions. BMW and Hyundai are also preparing offerings, as is General Motors affiliate GMAC. There's speculation that Chrysler Financial is interested as well, although the source of its receivables remains unclear. When affiliate Chrysler entered a government-brokered bankruptcy arrangement last April, all of its dealers agreed to shift their floorplan financing to GMAC. But the still-solvent Chrysler Financial continued to hold a loan inventory that it might now hope to securitize. Or it could be trying to raise money to revive its floorplan business. Outside auto-related issues, GE Capital appears to be lining up a deal. Most of its floorplan securitizations have been backed by loans to dealers of recreational vehicles. Why the urgency to get in on TALF's final rounds With the auto industry on unsteady ground, investors are reluctant to... http://www.abalert.com/headlines.php?hid=143802 Dynamic Credit Partners, once an active issuer of collateralized debt obligations, laid off portfolio manager Dan Nigro and trader Chris Sandleitner last week amid an ongoing shift in its business. Dynamic Credit's CDOs once accounted for a big part of its work as an asset manager. With the New York firm's last such deal now more than two years old, it has been turning more of its focus to expanding its structured-product advisory practice. But the advisory work isn't nearly as profitable, leading some market players to predict that more layoffs are coming. They were particularly surprised by the dismissal of Nigro, who has clocked more than 20 years in the securitization business, including stints at AIG, Ischus Capital and J.P. Morgan. Nigro was among Dynamic Credit's earliest hires when he joined in 2005. But his specialty - acquiring assets for collateralized debt obligations - was rendered largely obsolete amid the credit crisis. Ditto for Sandleitner, who previously had worked at Deutsche Bank and Morgan Stanley. Dynamic Credit's headcount now stands at 25, down from about 35 in 2007. For the firm's part, chief executive Jim Finkel denied that more job cuts are in the works. In fact, he said he is in hiring mode. quot;Our business has changed,quot; Finkel said. quot;Dan and Chris both did great jobs for us.quot; For now, their duties are consolidated under David Schwartz, head of Dynamic Credit's advisory business. That team's staff already included CDO specialists Mike Li, Deo Sabino and Mendel Starkm... http://www.abalert.com/headlines.php?hid=143707 Barclays, RBS Greenwich and Stifel Nicolaus are separately arranging sales of home loans that the FDIC took on amid the global financial crisis. The so-called structured sales, which industry players have been anticipating for months, would be part of a multi-pronged plan by the FDIC to unload a mix of assets held by some of the 168 depository institutions it has seized since mid-2007. Details of the mortgage sales are just coming to light. In many instances, the FDIC would transfer a portfolio of prime-quality or subprime loans to a special purpose vehicle and then sell a senior interest in the entity to the highest bidder. The buyer would also take an equity stake of 30-50, with the deposit insurer keeping the remaining equity. In some cases, the FDIC would offer low-cost financing to the winning investor. RBS is currently shopping $500 million of mortgages from several failed banks, while Stifel Nicolaus works to bring two offerings of some $500 million and $1 billion to market by March 31. Barclays' auction has similar characteristics. The offerings could help clarify the FDIC's overarching strategy for shedding seized assets. Barclays, RBS and Stifel Nicolaus were among a number of institutions designated by the insurer to help unload various holdings from failed banks following the credit-market blowup, as were Deutsche Bank, HSBC, Keefe Bruyette amp; Woods and Pentalpha Funding. So far, eight structured sales have taken place under the initiative. Each entailed only a single type of... http://www.abalert.com/headlines.php?hid=143587 Manheim Financial has postponed a planned securitization in response to waning investor demand, on the heels of a similar move by Ford. Both companies now intend to bring their offerings to market early next year, when investor interest is expected to rebound. Manheim's offering would be its first. The Atlanta company, which offers floorplan financing to car dealers and auto-rental businesses in the U.S. and Canada, had begun preliminary marketing efforts earlier this month with Barclays on board as bookrunner. It pulled back last week, as buysiders headed to the sidelines for the rest of the year. A source said Manheim isn't desperate for funding, and believes an early-2010 deal would offer a lower cost of capital. Ford was marketing an auto-loan issue in late November that would have qualified for buyer financing under the Federal Reserve's most recent round of Term Asset-Backed Securities Loan Facility funding, which went out Dec. 3. It held off after investors demanded wider spreads than it expected. The moves underscore a trend that has been taking shape for about a month. Investors, who usually tone down their buying around yearend, stepped away a few weeks earlier than usual this year to lock in gains. Issuers, however, kept pitching transactions. The result was a supply-and-demand imbalance that has caused funding costs to rise. One banker said buyers are also looking for any possible flaw or worst-case scenario to justify wider spreads. Issuers that don't need immediate funding are now... http://www.abalert.com/headlines.php?hid=143479 Companies that rely on commercial-paper conduits for funding are getting innovative in a late-year scramble to make sure their receivables continue to receive off-balance-sheet treatment. The efforts represent some of the latest maneuvers stemming from the Financial Accounting Standards Board's FAS 166 and 167 rules, which among other things will force banks that run conduits to bring those vehicles' assets onto their books beginning Jan 1. Now businesses that draw financing from those entities are awakening to the possibility that they too may face balance-sheet impacts. Their response is to propose changing the way they supply credit enhancement for asset pools sold to conduits, mainly trade receivables. Take a $1 billion batch of receivables as an example. Right now, a company that wants to sell those assets to a conduit while kicking in enhancement of, say, 10, would hand over the full $1 billion portfolio while getting back $900 million of up-front funding. The remaining $100 million would protect conduit investors as over-collateralization. Under current FASB guidelines, the over-collateralization would remain on the seller's books while the rest would come off its balance sheet via a so-called true sale. But the new rules would essentially treat the funding as a loan, while negating the seller's true-sale status and possibly forcing it to keep all $1 billion of assets on its books. The suggested work-around is to still get the $900 million up-front, while replacing the over-collateralization with a junior... http://www.abalert.com/headlines.php?hid=143366 Nomura is apparently putting its money where its mouth is. Pushing forward with efforts to become a major broker of structured products in the U.S., the Tokyo bank has been trying to entice salesmen and traders capable of leading the effort by offering them guaranteed one-year contracts of $3 million to $5 million. Those packages, consisting of both salary and bonus payments, are worth about double what the targeted candidates are currently earning. Lower-level recruits are also getting sizeable raises. For example, a vice president who just joined Nomura's mortgage-bond trading desk got a 120 pay hike for the upcoming year. And a managing director was guaranteed $1.5 million, up from a projected $1 million at his former employer. The exact terms of Nomura's contracts are still the subject of speculation at this point, but some of the richest ones apparently are being fashioned for group heads who would arrive with the beginning of the 2010 calendar year. And while Nomura has been generous with structured-finance recruits who are already on board, it evidently has only recently upped the ante to current levels. It's also difficult to say exactly how much specific personnel are taking home. Nomura began building a structured-finance group from scratch in March as part of a broader push to boost its presence in the fixed-income market. Since then, it has built a securitization staff of about 30. A layer above the group heads Nomura is now seeking, the bank brought in longtime structured-product trader... http://www.abalert.com/headlines.php?hid=143271 The FDIC has hired at least three firms to help review or assign values to seized bank assets, including receivables it plans to securitize. The contractors - including Clayton of Shelton, Conn.; RER Financial of Herndon, Va.; and Thompson, Cobb, Bazilio amp; Associates of Washington - are each charged with assessing a growing inventory of residential and commercial mortgage bonds and loans that the FDIC has been taking on from failed banks. A few other shops are believed to have won similar assignments. In part, sources familiar with the FDIC believe the mandates mark an initial step toward carrying out an already-developing plan to unload some of the assets through securitization. The expectation is that the deposit insurer will start by selling bonds backed by home loans early next year, and then possibly move on to repackage mortgage securities into instruments resembling collateralized debt obligations. Many of the loans and bonds would also be tabbed for so-called structured sales, in which the FDIC retains an interest in the underlying assets by forming partnerships with private-sector investors. The FDIC has already sold some non-performing loans, although the exact natures of those transactions are unclear. Clayton, RER and Thompson each landed their assignments within the last couple of weeks, with an official at one of the firms describing his work as quot;due diligence and valuation services on assets for sale.quot; The source said his mandate focuses on structured sales, but that the evaluations he and some... http://www.abalert.com/headlines.php?hid=143138 Babson Capital has agreed to purchase a Jefferies Capital unit that manages five collateralized loan obligations. With the takeover, Babson will assume management duties for the issues: St. James River CLO; Clear Lake CLO; Diamond Lake CLO; Summit Lake CLO and Victoria Falls CLO. The MassMutual Financial subsidiary will also absorb the personnel running those deals - a group that encompasses fewer than 10 people. The CLOs involved were issued from 2005 to 2007 and have a total face value of $1.8 billion. Unlike some deals that lately have undergone management changes, they have performed well. The sale is set to go through shortly, after the CLOs' investors approve the management transfers. The arrangement would largely remove Jefferies from the CLO-management business. Aside from the assignments it is shedding, the New York broker-dealer only runs one such transaction - through a business-lending venture called Jefferies Finance that it launched in partnership with Boston-based Babson in 2004. Jefferies' motivation for selling its CLO operation stems from efforts by parent Jefferies amp; Co. to focus on its investment-banking activities, including work on securitizations. The company has been expanding its banking teams for more than a year, and apparently didn't consider CLO management a big part of its franchise. It also gets to share some revenues with Babson going forward. Babson, for its part, already ranks among the largest CLO managers with almost two dozen deals under its wings. It sees the takeover as a play... http://www.abalert.com/headlines.php?hid=143027 Marathon Asset Management pocketed millions of dollars over the past few months by buying back securities from a collateralized debt obligation it issued in 2005 and then retiring them at higher prices. The move has rankled market players. They say the tactic is untoward at best - and illegal at worst - as it was based on allegedly concealed information and could result in losses for junior bondholders. The deal in question is Marathon CLO 1, which had an original balance of $330.1 million spread among several senior and junior classes. At some point this year, Marathon repurchased most or all of the issue's triple-A-rated senior notes from Bank of America at prices that industry participants peg at 85 cents on the dollar. At the end of September, the New York firm, in its capacity as the CLO manager, started liquidating the transaction's underlying leveraged loans with the intention of using the proceeds to retire the repurchased senior classes at par. That money started flowing to Marathon on Oct. 26. The CLO had two senior classes with a total face value of about $245 million, little of which had previously been paid off. The quick turnaround netted Marathon more than $40 million, by some estimates. Where does that leave junior investors According to a report issued by trustee Bank of New York on Oct. 16, Marathon liquidated about two-thirds of the remaining collateral for the deal - assets with a face value of almost $219.2 million - from the end of September to the middle of October. The sa... http://www.abalert.com/headlines.php?hid=142913 Ford is planning a substantial boost in its securitization volume. In recent talks with underwriters, representatives from the automaker have indicated that they expect its 2010 output of securities backed by prime-quality auto loans, leases and dealer-floorplan credits written in the U.S. to total some $14 billion. That would mark Ford's busiest year as an asset-backed bond issuer in the States since 2005, when it weighed in with $14.5 billion of deals, according to Asset-Backed Alert's ABS Database. The company then followed up with $10.7 billion of transactions in 2006, $5 billion in 2007 and $9.9 billion in 2008. So far this year, Ford has sold $9.2 billion of asset-backed securities. But with the lone exception of a $500 million floorplan-loan transaction in June, all of its 2009 issues have been aided by buyer financing made available through the Federal Reserve's Term Asset-Backed Securities Loan Facility. Now, with TALF set to stop offering new investor support in March, Ford's latest volume projections suggest a bullish outlook on its business in general. The approach is reinforced by increasing market share, as Ford gains on sales leaders General Motors and Toyota. Increased third-quarter sales also came as a positive sign, even if those figures were buoyed in part by the federal government's now-expired quot;cash-for-clunkersquot; program. Stock analysts are even predicting that the Dearborn, Mich., company will break even for the third quarter, which would... http://www.abalert.com/headlines.php?hid=142820 Could the commercial-paper conduit industry vanish in 2010 While the thought has been in the backs of many market players' minds for years, it has lately come to be seen as less of an extreme view and more of a real possibility. That's because there's a growing sense that nothing will be done to temper the effects of the Financial Accounting Standards Board's pending FAS 166 and 167 rules. quot;We may be going to zero,quot; one investment-bank staffer said, referring to the volume of conduit paper in the hands of investors. Ever since FASB started work on the earliest precursors to its new accounting guidelines six years ago, industry pessimists have warned of a chilling effect on the market. Now set to take effect Jan 1, the rules would end off-balance-sheet treatment for assets securitized by banks and certain vehicles they run - including conduits. The upshot would be a vast increase in the amounts of reserve capital those institutions have to hold, which could drive up conduit-related funding costs to uneconomical levels virtually across the board. Many securitization specialists were until recently holding out hope for a reprieve. It's ultimately up to the FDIC and Federal Reserve to dictate how capital should be set aside against on-balance-sheet conduit assets, and market professionals have been pushing hard for relaxed or at least clarified rules. It wasn't until now, with the implementation date in sight, that even previously bullish players have started losing hope. quot;There is a f... http://www.abalert.com/headlines.php?hid=142695 Leverage is trickling back into the mortgage-securitization market. In a move that is already buoying bond prices, and could hurt smaller competitors, large Wall Street institutions including Bank of America, Citigroup and J.P. Morgan have begun financing client purchases of home-loan securities on the secondary-market. Some mid-size institutions have been in on the act too, including Jefferies amp; Co. To be sure, leverage still isn't widely available to mortgage-bond buyers. Indeed, the banks have just begun to creep back into the business in recent weeks. But any willingness to help investors buy on margin signifies a drastic change in sentiment. As credit-market conditions began deteriorating in mid-2007, banks trimmed the amounts they were willing to lend to hedge funds and other leveraged buyers of mortgage bonds. And when the financial crisis hit new depths a year ago, the institutions all but cut off the flow of leverage. The result was that already-slow mortgage-bond trading became paralyzed. Now, the opposite is happening. Secondary-market prices for non-agency mortgage bonds had already rallied sharply in recent months as buysiders prepared for the launch of the U.S. Treasury Department's Public-Private Investment Program. PPIP has presumably contributed to the banks' more-bullish view as well, and the resulting availability of leverage from those players has pumped a gust of wind into the market's sails. The effect has been greatest for the cleanest... http://www.abalert.com/headlines.php?hid=142607 ---------- CORRECTION: Credit Suisse insists that it has no plans to downsize or eliminate its asset-backed commercial paper distribution desk, contrary to what appeared in the Oct. 9 article quot;Conduit Distribution Pros Face Downsizing.quot; A wave of staff reductions is looming for dealers of asset-backed commercial paper. While professionals who distribute commercial-paper conduit offerings have been hit by some of the same broad shakeouts as their peers amid the global financial crisis, industry players say they're now under consideration for more targeted cuts. Many are pointing to Citigroup as a candidate to move first, perhaps sacrificing its status as one of the busiest shops in the business. Sources said that other institutions with smaller dealer desks, including Credit Suisse and Deutsche Bank, could pull back as well. But whether that means a downsizing of their dealer operations, or their outright elimination, remains to be seen. The expectations stem in part from capital-reserve formulas that will take hold with the Financial Accounting Standards Board's new FAS 166 and 167 rules at yearend. More generally, dealers are feeling pressure from more than two years of contraction in the conduit market, from peak outstandings of $1.2 trillion in August 2007 to about $500 billion now. While conduit-dealer desks have shrunk to some extent during that time, there's a sense that those shops still employ far too many... http://www.abalert.com/headlines.php?hid=142485 There's always next year. Heading into the fourth quarter of 2009, market players don't foresee a surge in securitization volume that would put annual deal output even close to last year's worldwide total of $1.35 trillion - marking the industry's third consecutive year of contraction. However, hope is brewing for a slightly more robust 2010. So far this year, issuers around the world have placed $653.5 billion of new asset-backed securities, collateralized debt obligations and residential and commercial mortgage bonds, according to Asset-Backed Alert's ABS Database. That measures out to a decline of 20 from the year-ago tally of $815.8 billion. In some ways, that could be taken as an early hint of a recovery. Indeed, after a relatively strong start, new-deal flow lagged in the second quarter and eventually fell nearly 30 behind the mid-2008 total. Looking into 2010, the gap might close even further as buyers that took on distressed home loans early in the credit crisis start carrying out plans to package rehabilitated accounts into new quot;scratch-and-dentquot; bonds. The expectations come partly in response to recent improvements in the performance of those players' holdings, said Scott Eichel, who co-heads global securitization trading at RBS - the world's most active underwriter of securitized products. Outside the home-loan sector, there is a growing sentiment that buysiders have become more willing to take on risk. That's... http://www.abalert.com/headlines.php?hid=142400 Samp;P is temporarily curtailing the volume of new ratings it assigns to asset-backed bonds issued by banks. The retreat appears focused on credit-card securities, given their prevalence among bank-issued transactions. However, the agency still plans to grade a few such deals in the near term. At issue is a longstanding lack of clarity about how bank insolvencies might play out after Jan. 1, when banks must start booking securitized assets on their balance sheets under the Financial Accounting Standards Board's pending FAS 167 rules. Samp;P apparently feels that before it gets back to business as usual, it needs to know more about how the FDIC plans to treat bond collateral tied in those scenarios. The agency, like many other players in the securitization industry, is concerned that the FDIC could seize securitized assets to re-pay other creditors of failed banks. Such actions are currently blocked by true-sale accounting procedures, in which issuers gain bankruptcy-remote status for their assets by transferring them to special purpose vehicles used in securitizations. But that treatment will vanish for banks with the implementation of FAS 167. While the concern certainly isn't limited to Samp;P, it is the only rating agency that has taken action. An executive at another agency said he believes the FDIC will clarify its intent well before FAS 167 kicks in, and thus doesn't see the need for a similar move. quot;I would be surprised if [the FDIC] didn't put something out,quot; he said.... http://www.abalert.com/headlines.php?hid=142288 Fears that the Financial Accounting Standards Board's FAS 167 rules would push issuers out of the asset-backed bond market are beginning to be realized. As banks formulate their funding plans for 2010, Bank of America, Capital One, J.P. Morgan and other institutions are coming to view securitization as a less-appealing capital source - given projections that the new accounting guidelines would vastly increase the reserves associated with such deals. The expectation is that they will curtail their issuance activity next year as a result. While the accounting provisions laid out in FAS 167 will apply to all types of asset-backed bonds issued by banks, the impact is likely to be most significant for credit-card securitizations from the largest institutions, in part because of their prevalence in the market. A pending rule change by the FDIC is also diminishing banks' interest in credit-card securitizations. That switch would remove a safe-harbor provision that currently protects securitized card receivables from seizure by the deposit insurer in the case of a bank receivership. Without that insulation, it would be difficult for banks with anything less than stellar unsecured-debt ratings to obtain triple-A grades for their card-backed bonds. The FASB rules are still taking center stage, however. At issue is how banks would have to hold capital against securitized assets that currently get off-balance-sheet treatment, but would be brought onto their books under FAS 167. While the guidelines were finalized June 12,... http://www.abalert.com/headlines.php?hid=142183 ---------- CORRECTION:The July mortgage-bond defaults cited in a Sept. 11 article, quot;MBS Losses Grow Murky as Defaults Rocket,quot; included classes of bonds that Samp;P had earlier downgraded to quot;Dquot; and then confirmed at that rating during the month. Of the 2,996 defaulted tranches, 881 had their ratings lowered in July, compared to 289 in July 2008. The rest of the July 2009 tally consisted of confirmations of previous downgrades. In the first seven months of this year, Samp;P downgraded 7,233 tranches of home-loan securities to quot;Dquot; while confirming such ratings for 7,624 classes. ---------- Holders of home-loan bonds are absorbing a one-two punch - deals are defaulting at a rapidly increasing rate, and it has become more difficult than ever to estimate the severity of losses on those holdings. In July alone, Samp;P downgraded 2,996 classes of securities backed by prime-quality mortgages, subprime home loans and home-equity credits to quot;D,quot; declaring them in default after missing scheduled payments. That's up from 143 tranches that the agency downgraded to quot;Dquot; in July 2008. That jump punctuates a trend in which the number of mortgage-bond classes slipping into default each month has been soaring since late 2007. In the first seven months of this year, Samp;P downgraded a whopping 7,624 tranches to quot;D.quot; Before that, it had declared 1,585 tranches in default, according to data the agency compiled for Asset-Backed Alert. More than half of the tranches that defaulted in the... http://www.abalert.com/headlines.php?hid=142077 Private equity firm Kidd amp; Co. has devised a novel securitization strategy that would finance investments in distressed-company debt. As part of the plan, Kidd's investment-banking affiliate, Glenville Partners, is putting together a team of professionals to help execute the deals. Leading the group is managing partner Sean Byrne, who arrived last month from J.P. Morgan. He has already hired sales specialists James Powers and Zoltan Adam, and intends to bring another 6-10 staffers on board in the coming weeks. The crew has two issues in the works so far, and anticipates a steady flow going forward. Kidd expects the initial deals to hit the market in 3-6 months. One, backed by loans to a finance company, would total $50 million to $100 million. The other, involving a medical-equipment leasing business, would be in the neighborhood of $30 million to $50 million. Both would be privately placed with a small group of investors, and whether they'll carry any ratings will depend on the demands of prospective buyers The securitization initiative dovetails with Kidd's typical strategy of taking control of troubled companies by buying their debt, including nonperforming obligations, often for just cents on the dollar. The firm, which has 35 years of workout and turnaround experience, then aims to get the businesses back on track via operational improvements. The goal is to exit the positions in 3-5 years. The planned bond offerings would add a twist, with Kidd aiming to get its acquirees' loans performing again through its... http://www.abalert.com/headlines.php?hid=141962 U.S. government officials are aiming for September to decide once and for all how banks' capital reserves should reflect a tidal wave of securitized assets that are headed for their balance sheets. The landmark ruling, from the FDIC, Federal Reserve, Office of the Comptroller of the Currency and Office of Thrift Supervision, would mark one of the final steps in determining the impact of the Financial Accounting Standards Board's FAS 167. At issue are the costs issuers incur in tending to huge volumes of already-securitized assets, and when, or if, securitization might re-emerge as a popular funding source. The timing of the government's planned decision fits in with ongoing attempts to prepare for the implementation of the FAS 167 guidelines. Those long-developing rules, finalized this year, followed a previous decision to eliminate an accounting designation for bond-issuing vehicles known as qualified special purpose entities - which issuers have long employed to remove securitized assets from their balance sheets. Instead, the quot;primary beneficiaryquot; of each securitization, typically the issuer, would have to list the collateral on their books beginning in January. But it's up to the government to decide how banking institutions would have to set aside capital against those assets. Under current rules, banks would be exposed to full withholding requirements immediately upon quot;consolidatingquot; their assets - instantly killing one of the most advantageous aspects of asset-backed bond sales while forcing them to... http://www.abalert.com/headlines.php?hid=141875 The U.S. Treasury Department has quietly notified the nine asset-management groups chosen to set up funds under its Public-Private Investment Program that the effort's timetable has been pushed back by at least a month. When the Treasury announced the selection of asset managers on July 8, it said the plan was to have the program up and running in early August. But government officials are still nailing down key details of the initiative, and some of the managers are behind schedule in raising the required minimum of $500 million each from private-sector investors - money the government will match dollar for dollar. The managers were told this week not to expect to begin investing before Labor Day. Under the program, originally announced in March, the fund managers will pool public and private capital to buy distressed mortgage assets that are currently cluttering bank balance sheets. The funds now set to launch in September would invest in both residential and commercial mortgage bonds. A separate loan-buying component run by the FDIC, meanwhile, remains without a timeline. Some of the fund managers are blaming the delay of the distressed-securities effort on hold-ups at the Treasury, which is still working out critical details of the program and has yet to distribute legal documents. The participating firms, for example, are still waiting for guidance on what types of collateral they should target in their mortgage-bond purchases - including whether the Treasury would prefer them to focus on residential or... http://www.abalert.com/headlines.php?hid=141748 The Federal Reserve is thinking about increasing the down payments it requires from investors that buy certain types of bonds with financing from its Term Asset-Backed Securities Loan Facility. The new policy would apply to securities backed by auto loans and leases, and possibly credit cards. The intent would be to wean the strongest issuers in the most liquid asset classes off the program, while re-directing the central bank's resources to the areas in greatest need of help. For auto lenders, such a move would appear to have the most dramatic impact on foreign issuers, like Honda and Nissan, that are seen as being on a better footing than U.S. rivals Chrysler, Ford and General Motors. But the Fed is taking a cautious approach, as efforts to discourage TALF issuance by the most stable automakers could also make it harder for their shakier peers to access the market. A securitization professional who used to work for one of the Detroit Three said the Fed might simply increase down payments for bonds whose underlying borrowers have the highest average credit scores, as those accounts are most prevalent among the healthiest automakers. The down payments, expressed as haircuts, currently take several forms based on duration and asset type. For example: 9 of the amount purchased for three-year securities backed by prime-quality loans, 12 for three-year subprime-loan bonds and 13 for comparable prime leases. But changes to those formulas would be lined with potential pitfalls. quot;The Fed cannot be viewed as target... http://www.abalert.com/headlines.php?hid=141641 An anticipated gush of selling could cause the values of mortgage-related bonds to whipsaw in the coming months. Industry players are looking ahead to a logjam of secondary-market offerings, as troubled collateralized debt obligations and structured investment vehicles are forced to liquidate portfolios of home-loan bonds. Healthier players are likely to unload inventory as well. The upshot is that supply has a strong chance of exceeding demand, which could wipe out recent gains in the prices of mortgage securities. Troubled CDOs with an estimated face value of $50 billion are expected to enter liquidation in the coming months, with a large portion of their holdings consisting of home-loan product. Defunct SIVs formerly run by Axon Financial and Ceres Capital are also poised to be heavy sellers, as they move to auction off $13 billion of assets by yearend. On top of that, banks, insurers, asset managers and other investors are planning opportunistic sales to lock in price increases that occurred following a July 8 announcement by the U.S. Treasury Department that it was moving forward with its Public-Private Investment Partnership. On top of that are early indications of a spurt of new mortgage-backed issues in the pipeline (see article on Page 3). A hint of the coming secondary-market supply was seen this week, when bondholders voted to liquidate Kent Funding 1, a CDO that Declaration Management issued in 2005 at a face value of $1 billion. The investors gained that power after the transact... http://www.abalert.com/headlines.php?hid=141537 J.P. Morgan is no longer interested in underwriting collateralized debt obligations. The bank pulled the plug on its once-active CDO-underwriting division at the end of June, culminating a gradual withdrawal that began in 2007. Employees of the unit were given the option of looking for other positions within the bank or accepting severance packages. Those who chose to leave include vice president David Goldfinger, who had been originating and structuring CDOs since joining J.P. Morgan in 2002. Also rumored to be gone is Vivek Mathew, another vice president with a CDO-structuring focus. Meanwhile, Sean Griffin appears to be staying behind temporarily as the sole member of J.P. Morgan's CDO group - with the mission of unwinding the unit. He has worked at the bank for about eight years. Goldfinger, Mathew and Griffin were among just a handful of personnel left in J.P. Morgan's CDO operation following numerous staff exits amid the credit-market collapse. In October 2007, for example, the bank severed a team brought in just a year earlier to boost its presence as an underwriter of deals backed by structured-product portfolios. Industry players say the broader CDO division's fate began to look especially dim with the October 2008 resignations of Brian Zeitlin and Jim Kane. Zeitlin presided over CDO underwriting as global structured credit product chief, while Kane led North American structured-product distribution. The two now run a New York advisory shop called GreensLedge Group. They had joined J.P. Morgan in... http://www.abalert.com/headlines.php?hid=141455 Secondary-market prices are soaring for bonds that qualify for buyer financing via the Federal Reserve's Term Asset-Backed Securities Loan Facility. The movements set the securities apart from non-eligible paper, whose values have remained unchanged or have even moved in the opposite direction. For example: Three-year senior auto-loan bonds that Honda priced at 250 bp over swaps in a May 5 TALF transaction were changing hands this week at 125 bp over swaps - with much of that differential emerging in recent days. By comparison, triple-A-rated auto-loan bonds with similar maturities but without TALF eligibility were trading this week at 225 bp over swaps, unchanged from the previous week. The reason for the so-called tiering: There has been more demand for recent TALF bonds than issuers could accommodate, forcing investors to seek supply on the secondary market. One buysider noted that in the latest monthly round of TALF issues, which priced on or just before July 7, a $725 million auto-loan deal from AmeriCredit was 17 times oversubscribed. quot;If the oversubscription continues, you'd fundamentally expect that spreads will continue to tightenquot; for TALF-eligible paper, another trader said. Investors are eager to snap up TALF bonds for several reasons. First, the non-recourse nature of the Fed loans acts as an added assurance for bondholders. It also helps that such financing is available, as most other sources of leverage have vanished. And because the underlying collateral is relatively new and desig... http://www.abalert.com/headlines.php?hid=141336 Worldwide securitization activity is set to build ever so slightly in the next six months with continued central-bank support, as annual issuance volume heads toward its lowest point since 2002. Issuers around the world leaned heavily on government-sponsored liquidity programs as they generated $409.1 billion of new asset-backed securities, residential mortgage bonds, commercial MBS and collateralized debt obligations during the first half of this year, according to Asset-Backed Alert's ABS Database. With that support still in place, industry players are looking for a full-year total of roughly $850 billion - meaning they foresee only a modest rebound from the depressed levels of the January-June stretch. The main driver of any such recovery would be the U.S asset-backed bond market, as the flow of European deals holds steady at a slower pace than last year. But no matter what happens, it's a cinch that 2009 volume will fall far short of 2008's $1.4 trillion tally. The last time annual securitization volume registered below $850 billion was 2001, when $768 billion of deals came to market. The industry then entered a period of explosive growth that would see annual supply peak at $2.7 trillion in 2006, only to fall to $2.3 trillion in 2007 as the global credit crisis took hold. The steep drop to the 2008 figure, meanwhile, reflected a lack of late-year deals as credit-market conditions worsened. Even with this year's further reduction, however, market players said they are simply happy to see any sign... http://www.abalert.com/headlines.php?hid=141237 Lloyds Banking is unwinding one of the world's largest portfolios of asset- and mortgage-backed bonds. The holdings, with an estimated face value of $105 billion, represent the combined businesses of a buyside platform that the London bank inherited with its January takeover of HBOS and a smaller program it was already maintaining. The HBOS component, accounting for $80 billion of the total, had been run by Richard Paddle in London. He left the bank last month, and is expected to take a few months off before getting back into the business. Also gone are six members of Paddle's 10-person team, including portfolio managers Jason Walker, Milan Patel and Asha Panigrahi. Paddle was overseeing the portfolio as HBOS' head of credit-product trading. His duties have been taken over by Lloyds' Kate Grant - who was already running more than $25 billion of structured-product investments at the bank. The remaining members of Paddle's group, including portfolio manager Wouter Vanasscher, have been folded into Grant's team. While Lloyds appears to be focusing on HBOS' securitized-product investments for disposal, word is that the bank eventually intends to unload the holdings of Grant's division as well. In both cases, the moves would come as part of an effort by the battered bank to shed risk after receiving substantial cash infusions and other support from the U.K. government. Some of the holdings would be allowed to mature, while others would be sold. But inconducive market conditions could cause the process to... http://www.abalert.com/headlines.php?hid=141150 Wall Street dealers appear to be ending a practice in which they have routinely assigned values to clients' holdings of asset- and mortgage-backed bonds free of charge. Most top underwriters in the business have recently told buysiders that they plan to make such moves or have made hints to that effect, with some of the shops already taking action. The banks say they have little choice, due to fallout from the credit crisis - such as staff and budget reductions, and additional efforts that have become necessary in determining bond values. The complimentary pricing services, usually offered via traders and salesman at major investment banks, have long provided regular buyers of structured products with subsequent mark-to-market valuations of those holdings on a daily, monthly or quarterly basis. The bondholders, in turn, have come to rely on the marks in managing their portfolios. Some banks are now planning to charge fees for broader versions of the services, while others are cutting back on the pricing information they supply to clients. The move away from free support has drawn mixed responses from buysiders. Some investors understand that cash-strapped banks must now charge asset managers for marks, realizing the institutions can't afford to absorb the related infrastructure costs - especially given the fact that volatile market conditions have made such exercises more labor intensive than ever. However, some see it as just another sign that investment banks have abandoned their franchises as market... http://www.abalert.com/headlines.php?hid=141023 The next shoe is dropping on the already-clobbered mortgage-backed securities market, and this time holders of senior bonds are among those in peril. The continued deterioration of home values combined with the widespread expiration of lenders' foreclosure moratoriums are accelerating losses in first-lien mortgage portfolios that secure many MBS issues. Rating-agency analysts are privately warning market players of the new one-two punch, which they contend will cause losses for the top-rated classes of many MBS issues. Subprime-mortgage issues are already hemorrhaging from the latest housing-market conditions, but rating-agency analysts predict the losses will spread over time to bonds backed by alternative-A loans and even mortgages to prime-quality borrowers. quot;For a lot of these, it's just a matter of time,quot; said one rating-agency professional. The agencies are believed to be preparing reports on the ominous trend. It's difficult to tell which issues will suffer losses first given the unpredictability of repayment trends, regional unemployment rates and shrinking home values. But analysts point to several MBS issues whose senior pieces are drifting closer to the danger zone. For instance, losses on the subprime mortgages backing Natixis' Real Estate Capital Trust 2007-HE2 issue have wiped out all but three of the junior tranches protecting senior-bond holders. Losses ate through five of the subordinate tranches in only the past six months. Mortgages securing the issue, which... http://www.abalert.com/headlines.php?hid=140916 Mortgage lenders have started approaching rating agencies with securitization pools that they think might qualify for an expanded version of the Federal Reserve's Term Asset-Backed Securities Loan Facility. The prospective issuers include many of the nation's largest banks, such as Bank of America, Citigroup, J.P. Morgan and Wells Fargo. It's unclear exactly what the institutions want from the rating agencies at this point, however, as the Fed has yet to approve proposals that would make mortgage bonds eligible for TALF financing. That said, investors believe it's possible the issuers are simply trying to get a feel for how the rating agencies would treat mortgage-backed offerings these days. Indeed, it has been nearly a year since anyone securitized new private-label mortgages in the U.S., and much of the criteria for grading such deals has changed in the meantime. quot;They're just trying to get a handle on what may be a triple-A [rating],quot; one buysider said. Mortgage lenders are certainly eager to see Fed-assisted securitization as a funding outlet. With open-market issuance costs currently prohibitive and whole-loan sales in a funk, many of those shops have been left holding inventories of loans that would be suitable for TALF deals. That is, if they were allowed. quot;They've got whole-loan pools they're sitting on and are thinking about securitizing into TALF,quot; the investor said. TALF was created to offer government financing to buyers of certain asset-backed securities, in a bid... http://www.abalert.com/headlines.php?hid=140811 Even as other credit-card lenders rush to sell bonds for use in the Federal Reserve's Term Asset-Backed Securities Loan Facility, Bank of America is worried such a move would leave it with an unwanted stigma. That's because under Fed guidelines, the Charlotte bank would be considered a subprime lender. According to Moody's, only 68.1 of the borrowers behind BofA's securitized credit-card accounts have FICO scores above 660. The Fed, meanwhile, doesn't consider card transactions to be of prime quality unless 70 of their underlying accounts are at or above that threshhold. The upshot is that buyers of any TALF-eligible bonds from BofA would have to adhere to a more stringent down-payment schedule that the Fed applies to financing of subprime-loan securities through the program. Those quot;haircutsquot; aren't onerous on their own, ranging from 6-10 instead of 5-8. But for BofA, the subprime label would represent a scarlet letter of sorts. Indeed, all subprime assets have been toxic since mid-2007, when defaults among mortgages to borrowers with weak credit histories set off the worst financial crisis in a generation. quot;They don't want it out there in bright lights,quot; one investment banker said. At the same time, expectations are mounting that BofA will soon take steps to reduce the volume of low-FICO-score receivables in its securitization pools. Such a move might resemble one made by GE Capital in February, when the company pulled $1.6 billion of low-quality receivables from the collateral for its outstand... http://www.abalert.com/headlines.php?hid=140714 Private-sector demand for U.K. mortgage bonds is about to get a major test, as issuers tap into a new government-guarantee program. A handful of issuers, rumored to include RBS and Lloyds TSB, are preparing to float several billion dollars of bonds backed by prime-quality home loans in the region and insured by the U.K. Treasury. They've already begun contacting investors, with a focus on U.S. money-market funds and corporate-buying programs that can pick up $150 million to $200 million of securities at a time. The deals are expected to price before U.K. financial-market players take their usual summer breaks, beginning in early August. But if the issues are still in the market at that time, it's possible that they'll linger until trading picks back up in September. The offerings would mark the first large wave of U.K. mortgage securitizations to make the rounds with private-sector investors in more than a year, in a shift away from a Bank of England program that has been propping up most deal production by writing repurchase lines against retained securities. But government support will still be at play. That's because the issues would be among the first crafted for a program, enacted April 22, through which U.K. Treasury will guarantee up to amp;163;50 billion ($77.6 billion) of principal and interest on mortgage bonds. Holders of the guaranteed bonds would be able to sell their covered holdings back to the issuers at no loss, with the Treasury making up any shortfall. Qualifying deals must be backed by prime-quality lo... http://www.abalert.com/headlines.php?hid=140606 Structured-product issuers are lining up an estimated $15 billion to $20 billion of deals for the next monthly installment in the Federal Reserve's Term Asset-Backed Securities Loan Facility. The offerings, scheduled to price on or just before June 2, would represent the largest wave of deals to emerge from the program so far - topping the $13.6 billion of issues that came to market during the first week of this month. The issuers in the queue include Capital One, which is contemplating a credit-card securitization in excess of $1 billion. Such an offering would mark a reversal of sorts for the lender, which was thought to be avoiding TALF while funding its receivables through deposits. Other first-time TALF users are likely to include Regions Financial, with an auto-loan issue. Meanwhile, GE Capital has been cited as a repeat issuer after completing a $1 billion sale of TALF-qualified credit-card bonds this month. Its next deal, however, would be backed by floorplan loans to dealers of boats and recreational vehicles. A number of the June offerings are likely to come from companies that were planning to sell TALF-compliant bonds in the program's previous rounds, but didn't follow through for various reasons. They include PHH Vehicle Management, with a deal backed by leases on fleets of cars and trucks, and Fifth Third Bank, with an auto-loan offering. Both of those transactions were initially scheduled for TALF's May round. Toyota was also expected to make an appearance this month with an auto-loan... http://www.abalert.com/headlines.php?hid=140527 As the Federal Reserve's Term Asset-Backed Securities Loan Facility produced its third monthly wave of bond offerings this week, some investors were grumbling that they never got a fair shot at the deals. Instead, the buysiders claimed that underwriters arranged ahead of time to sell certain transactions to just a few large clients. They point to two issues in particular: a $209 million auto-loan securitization from Mitsubishi and a $5 billion credit-card deal from J.P. Morgan. Bookrunner Bank of America placed the Mitsubishi securities with just two investors, while J.P. Morgan's underwriting arm effectively took its already-planned transaction off the table for other buyers after receiving a reverse inquiry from five big clients. There was also talk that BofA, J.P. Morgan and RBS Greenwich Capital carried out a $2.6 billion issue for Sallie Mae in a similar fashion (see Initial Pricings on Page 10). In each case, market players said they initially caught wind of the sought-after deals a few weeks ago only to see them carried out amid an air of secrecy. Many said they never even had a chance to bid on the issues. So who are the buyers Sources point to BlackRock and Pimco as candidates, as they often do when naming big-time holders of asset-backed bonds - and valuable clients of underwriters. Those apparently getting shut out, meanwhile, include a number of hedge fund managers that set up vehicles in recent months specifically to trade TALF-eligible bonds. Some of those firms are run by former bankers. They... http://www.abalert.com/headlines.php?hid=140410 Buysiders are expressing frustration over how dealers handled this week's auction of assets from the failed Whistlejacket Capital structured investment vehicle. About 15 winners emerged on the April 29 bidding deadline, absorbing roughly half of the SIV's $5 billion-plus portfolio. But much of that buying was carried out by a just a few large investment banks that managed the offering process, including Bank of America and Goldman Sachs. Meanwhile, many insurers, asset managers and other traditional investors didn't even bother to participate. The reason: They figured any bids submitted for the most desirable portions of the portfolio would just serve as a reference point for the banks to formulate slightly higher offers of their own. The situation began shaping up more than a month ago, when the dealers sought preliminary bids for Whistlejacket's portfolio - consisting largely of asset-backed securities, mortgage bonds, collateralized debt obligations and corporate debt. At the time, the inquiries looked like an effort to gauge how the sale might unfold. Instead of using the information to ensure a smooth auction, however, investors alleged the banks' intent all along was to come up with prices that would position themselves as sure winners. The apparent plan was to corner any upside on the positions by bidding slightly more for the assets, then holding them until market conditions improve - allowing them to be sold at profits. This isn't the first time such complaints have surfaced. As... http://www.abalert.com/headlines.php?hid=140303 A recent jump in the values of private-label mortgage bonds is looking more like a sustained rally. The prices of such instruments rose on the secondary market this week, as Wall Street institutions including Bank of America, Citigroup and J.P. Morgan snatched up billions of dollars of bid lists. Those purchases signaled a willingness by the banks to make markets and hold inventory for buy-side clients, in turn creating optimism about a continuing improvement in trading conditions. Since the credit crunch began in mid-2007, dealers had become less willing to help out clients who wanted to unload mortgage-bond investments - as the institutions became weighed down by their own inventories. quot;We are just getting back to the way we do business with our clients, which includes providing liquidity when they need it,quot; said James DeMare, who heads securitized-product trading at BofA. quot;Most people you talk to say [non-agency mortgage bonds] are attractive.quot; The banks' renewed market-making interest is largely a result of improving financial health on their own part. They also believe investor interest in mortgage bonds has grown, which cancels out some of the risk that they'll get stuck with investments. Bid lists containing mortgage securities with a face value of at least $2.7 billion found buyers in recent days, with big banks accounting for much of the demand. BofA, for instance, took on a $200 million portfolio of bonds backed by option adjustable-rate mortgages last week. An unidentified... http://www.abalert.com/headlines.php?hid=140214 The third round of funding from the Federal Reserve's Term Asset-Backed Securities Loan Facility is shaping up as the largest yet. As much as $10 billion of securitizations are in the works for the program's May installment, headlined by a $3.6 billion student-loan deal from Sallie Mae. Also in the queue are auto-loan issues of $1 billion from Toyota and $500 million from Honda, along with an auto-lease transaction from PHH Vehicle Management. Among credit-card deals, J.P. Morgan is planning a $1 billion offering and GE Capital is working on an issue of undetermined size. Motorcycle manufacturer Harley-Davidson also intends to be in the market. So do Caterpillar and John Deere, following through on previously discussed plans. Early indications are that the issues will price by May 7, with the Fed doling out TALF loans to buyers on or around May 14. While the deal flow is still a far cry from what was the norm before the credit market tanked, it is robust by recent standards. Just $7.4 billion of TALF-eligible bonds priced in the program's opening round in March, followed by a mere $2.7 billion of offerings in April - representing the lion's share of U.S. asset-backed securities volume in recent months. Those totals came as a disappointment to many industry players, who initially predicted that Round 1 alone would see $20 billion of production. But next month's tally suggests that interest in the program is still increasing. There have also been signs of a broader market recovery. Only about half of... http://www.abalert.com/headlines.php?hid=140110 A push by Sallie Mae to unload a pile of debt-consolidation credits is breathing life into the moribund market for securities backed by student loans. The initiative has already led to one consolidation-loan securitization, a $2.2 billion issue that Sallie priced April 3 via bookrunners Barclays, Deutsche Bank and J.P. Morgan (see Initial Pricings on Page 10). That left the Reston, Va., with some $3.8 billion of consolidation credits that it still wants to shed, possibly through a series of securitizations that could price in the coming weeks. Sallie's securitization plans are driven by a need to find new sources of funding for various assets as it works to unwind a $24.7 billion commercial-paper conduit facility it had been using for nearly two years. quot;Securitization is really the best way and about the only way,quot; said an equity analyst, referring to plans for consolidation loans held by the conduit line. quot;Sallie can finally rip off the Band-Aid and get rid of this stuff.quot; Sallie also plans to funnel loans into the U.S. Department of Education's Straight A-Funding quot;super conduit,quot; which is slated to go live any day now. That entity is expected to fund $40 billion of student loans, but only government-guaranteed credits written from Oct. 1, 2003, through June 30, 2009, are eligible. Consolidation credits don't make the cut - hence the need to find a long-term funding solution for those loans. Once the super conduit is up and running, Sallie intends to stop using its own conduit facility to fund... http://www.abalert.com/headlines.php?hid=139994 President Obama's threat to push Chrysler and General Motors into bankruptcy has all but ruled out the possibility of those companies securitizing auto loans anytime soon, while scaring off secondary-market buyers of their bonds. Investors grew worried that cashflows supporting their bonds backed by Chrysler and GM auto loans would plummet if one or both of the companies reorganized under Chapter 11 of the U.S. Bankruptcy Code. Equity analysts predicted that bankruptcy filings would cause immediate 10-25 declines in the resale values of Chrysler and GM vehicles - and some borrowers would respond by stopping their monthly car-loan or lease payments. Such a scenario would also mean fewer proceeds from sales of repossessed cars - capital that helps support securitizations. Those concerns were reflected this week, as values among auto-loan securities issued by Chrysler Financial and GMAC fell, while other issuer's deals leveled off after rallying in the preceding days. It didn't seem to matter that one of the strongest selling points of asset-backed securities has always been that they are insulated from the risks of bankruptcy. In thin trading, 1-year senior bonds backed by Chrysler Financial loans changed hands this week at spreads yielding 800-900 bp over swaps, 100-200 bp wider than a week earlier. The wider spreads translated into a price of about 89 cents on the dollar for the securities. Two-year GMAC issues, meanwhile, were offered at 800 bp over swaps, which wasn't enough to attract any takers. By... http://www.abalert.com/headlines.php?hid=139889 Seer Capital, the investment shop led by former Deutsche Bank structured-finance executives Phil Weingord and Richard D'Albert, is ready to launch its first hedge fund. The New York firm hopes to get its Seer Capital Master Fund up and running in the coming weeks, using the vehicle to buy distressed asset-backed securities, residential and commercial mortgage bonds and whole loans. The plan is to raise $200 million to $400 million for the entity by tapping funds of funds, pension systems, foundations, endowments, family offices and wealthy individuals for equity contributions. The fund won't use leverage to increase its buying power. Its investment strategy mirrors what Seer has been doing through separate accounts since Weingord started the firm last year. Those accounts now encompass about $200 million of client capital. The decision to start with separate accounts partly reflects a recent preference by investors to have their money in stand-alone portfolios that they can access easily. Many of those players became wary of commingled funds when managers of such vehicles responded to credit-crisis pressures by blocking withdrawals and walling off illiquid holdings in so-called side pockets. They also feared getting stuck with unwanted assets amid heavy redemptions by shareholders more concerned with short-term results. For its work on the new vehicle, Seer will charge typical hedge fund fees equal to 2 of assets and 20 of profits. The firm is manned by a staff of 18 structured-product... http://www.abalert.com/headlines.php?hid=139786 An ever-widening variety of investors are seeking to participate in the Federal Reserve's Term Asset-Backed Securities Loan Facility. Among the latest to emerge as prospective buyers of bonds that qualify for the government-lending program are big Wall Street dealers, including Barclays, Deutsche Bank and J.P. Morgan. At the same time, commercial-paper conduit operators are talking to lawyers about purchasing TALF-eligible securities. In both cases, the investments would entail the creation of special-purpose entities that would hold pools of eligible bonds. For the conduit operators, those vehicles would essentially serve as intermediaries for their own portfolios. But the dealers are pitching theirs to third-party players. Barclays and J.P. Morgan already have such vehicles up and running, although it's unclear whether they were among an estimated 15 buysiders that met the March 19 deadline to apply for an initial round of TALF loans that goes out next week. Deutsche's vehicle is still in the works. All three banks are also signed up to underwrite deals that qualify for TALF, which seeks to bolster demand for triple-A-rated asset-backed securities by offering Fed loans to buyers of such products. That means the institutions would receive two layers of fees: their initial underwriting discounts, plus management charges equal to an estimated 1.5 of their investment vehicles' holdings. Why set up the intermediary vehicles Many investors are eager to obtain TALF loans, but are put off by quot;customer... http://www.abalert.com/headlines.php?hid=139683 DZ Bank is shutting down its U.S. commercial-paper conduit operation, spurring talk that the unit's 21-member staff will soon shift somewhere else. The Frankfurt bank made the call to shutter the New York-based division last week. In the process, it implemented a 3-year unwinding plan for the team's only conduit, the $2.7 billion Autobahn Funding. Sources at DZ said several other institutions have already inquired about picking up the group's employees to start a new conduit operation or join an existing one. The talk is that the individuals could have a new home by the end of September, but they will remain involved with DZ until Autobahn finishes unwinding. DZ's conduit staff is run by Patrick Preece and lieutenants Dan Marino, Sandeep Srinath and Chris Tucker. The reasons for shuttering the operation weren't tied to performance. Rather, the 1,400 constituent banks that make up DZ appear to have decided that the U.S. effort didn't benefit them as Germany-focused institutions. The move came with little warning. Just a month ago, DZ was seeking a deal-surveillance specialist for Autobahn. It has now called off that search. The plan doesn't affect DZ's other securitization businesses, including a conduit division it maintains in Europe. Compared to many other conduits, Autobahn has fared well throughout the credit crunch - actually increasing its outstandings and its funding capacity. The multi-seller vehicle has been able to do so largely because it has avoided mortgages in favor of funding... http://www.abalert.com/headlines.php?hid=139572 Deteriorating borrower performance has forced American Express, Citigroup and First National Bank of Omaha to divert cashflows from securitized credit cards into special reserve accounts - and more drastic moves could follow. The so-called cash trapping was triggered by a slide in excess spreads, the money remaining in securitization pools after bondholders have been paid. Under normal circumstances, those funds would be the issuers' to keep. But if excess spreads fall to minimums established in bond covenants, those cashflows must be set aside to create cushions against investor losses. Typically, those quot;triggersquot; are 4-5. Amex trapped $1.5 million for two series of fixed-rate bonds in February, after the deals' excess spreads fell below a 5 threshold. Unless those spreads rebound, the lender must increase the reserve to $22 million. Citi started trapping cash on deals from its Citibank Credit Card Issuance Trust in January, when excess spreads dipped below a 4.5 minimum. Some deals from an older Citi trust were already trapping cash last year. First National Bank of Omaha, meanwhile, started trapping last month, when spreads on its First National Master Note Trust dipped to 3.8. The maneuvers mirror those taken by several other credit-card lenders in recent months, as weakening consumer credit has sent ripples through securitization trusts. Ultimately, the issuers will want to restore their excess spreads, so they can resume pocketing the left-over cashflows. To achieve that goal, Amex and Citi may follow the... http://www.abalert.com/headlines.php?hid=139483 ---------- CORRECTION: A Feb. 27 article, quot;Rating Downgrades Swamp Alt-A Bonds,quot; mischaracterized the volume of alternative-A mortgage bonds held by State Street Global Advisors. The firm owns $234 million of such securities, accounting for just a small slice of its $535 billion of assets. ---------- The values of securities backed by alternative-A mortgages took another dive this week, after a raft of senior bonds were downgraded to junk status. Moody's has revised grades since last Friday on billions of dollars of securities collateralized by alt-A credits, lowering many from triple-A to below-investment-grade in one fell swoop. The underlying private-label mortgages, which have performed below expectations, were originally written for prime-quality borrowers but received the alt-A designation because they didn't meet loan-underwriting standards set by Fannie Mae and Freddie Mac. Overall prices for alt-A bonds are likely to keep declining over the next six months, as Moody's continues downgrading such deals. The agency expects their collateral-default rates to peak around the fourth quarter. Alt-A bond prices have been declining since last year amid financial-market turmoil and weakening housing prices. This week's downgrades accelerated that trend, as buysiders anticipated a flood of secondary-market offerings from large institutions that can't - or just won't - hold junk-rated bonds. Market... http://www.abalert.com/headlines.php?hid=139365 Credit-card lenders are hopping on the covered-bond bandwagon. Capital One, Citigroup and Discover are among several U.S. credit-card shops mulling such deals, as they seek alternatives to funding themselves in the downtrodden asset-backed bond market. Underwriter RBS Greenwich is also in on the act, as it works with a number of card companies to set up issuing platforms. Elizabeth Padova Hanson, who heads RBS' covered-bond unit and sits on SIFMA's covered-bond council, is spearheading the bank's efforts. Covered bonds, which combine aspects of asset-backed securities and corporate debt, have drawn considerable attention since early 2008 as a potential way for U.S. mortgage lenders to fund themselves in the face of anemic demand for traditional securitizations. But the on-balance-sheet deals haven't been seen as a possibility outside the home-loan sector until now. The motivations of credit-card lenders are largely the same as those of mortgage companies. That is, the yields they must pay to asset-backed bond buyers have often swollen to uneconomical levels amid the credit crisis, effectively erasing a once-dependable source of funding. Even after tightening by several hundred basis points, for instance, 2-year senior card bonds are trading around 300 bp over Libor - compared to flat to Libor before the debt market bombed in 2007. Covered bonds, meanwhile, promise to offer lower funding costs in part by appealing to a broader investment community that favors more conservative... http://www.abalert.com/headlines.php?hid=139260 Many securitization professionals came away from this week's big industry gathering in Las Vegas feeling conflicted and increasingly nervous about the U.S. government's expanding role in the market. On the one hand, most of the 4,200 structured-finance pros who registered for the American Securitization Forum event were eager to hear from and question the hundreds of federal officials and regulators who turned up in Las Vegas. Market players arrived at the trade group's conference with their hands out, hungry for details about how the government will use mountains of taxpayer money to inject badly needed liquidity into the stalled credit market. On the other hand, many securitization specialists confessed to nagging fears that the battered industry is ceding too much control in its hour of desperation. Long after the economy pulls out of its slump, the once-booming securitization business is likely to be far more modest - and far more heavily regulated - than it was in its heyday. quot;I've never seen so many regulatory guys in one place before,quot; one investment banker said. quot;They're everywhere. They make me nervous.quot; Several years from now, quot;There's going to be a massive effort to extractquot; the government from securitization, SIFMA president T. Timothy Ryan said. Industry players have to take their medicine with a smile for the time being, however, because only the federal government appears to have the wherewithal - and the inclination - to jump-start the frozen market. At least 10 regulatory... http://www.abalert.com/headlines.php?hid=139149 Some demand is emerging for professionals who can sell or trade structured products, defying an otherwise bleak employment outlook for 2009. Continuing a trend that has been in place since mid-2007, the overall job market for securitization specialists is expected to contract in the months ahead. But there is hiring taking place at broker/dealers, both on the part of established players and new shops. Those firms, which act as middlemen for investors who want to buy or sell various securities, need the extra hands as ongoing market fluctuations prompt clients to move around bonds backed by mortgages and other consumer assets. Investment firm Aladdin Capital, which is working to revive a dormant broker/dealer arm, got into the hiring act this week by bringing in two seasoned market players: John Carroll and David Attisani. Carroll's former employers include Barclays, where he headed asset-backed securities trading until a year ago. He now oversees securitized products for the Aladdin team. Attisani, who has covered sales of asset- and mortgage-backed bonds as a vice president at Countrywide, is helping to run sales and marketing. Amherst Securities, Guggenheim Capital, Jefferies amp; Co., Mesirow Financial and MF Global have also hired structured-product marketing specialists and/or traders in the past few weeks. Mesirow wants to bring in as many as 10 more residential and commercial mortgage bond traders and marketers by yearend. Recruiters also say bigger broker/dealers, including Morgan Keegan, Sandler... http://www.abalert.com/headlines.php?hid=139055 The almost 4,000 securitization professionals headed to next month's industry gathering in Las Vegas are desperate to revive their decimated corner of the financial market. So forget the extravagant parties of years past. Always an optimistic lot, most structured-finance pros expect private-label securitizations and related financing techniques to outlast the current slump. But it's becoming increasingly apparent that ensuring the market's survival will take a lot more work than anyone might have expected. That, in turn, makes those planning to attend the American Securitization Forum conference eager to press each other for ways to re-ignite issuance and trading. The trade group's four-day confab kicks off Feb. 8 at the Venetian Hotel. More than 3,500 market players were registered to attend as of this week, including 1,100-plus investors and just under 600 issuers. More signups are expected over the next week. But overall attendance at quot;ASF 2009quot; won't come close to last year's event, for which some 6,000 registered, because of massive layoffs across the industry and other fallout from the credit crisis. With asset- and mortgage-backed issuance at a virtual standstill and bonds trading sporadically at steep discounts on the secondary market, industry insiders feel an urgent need to use the sixth annual ASF summit as a forum for figuring out how securitizations will fit into a post-credit-crunch universe. quot;The securitization world is much different today than at any other time in its... http://www.abalert.com/headlines.php?hid=138935 Market insiders are predicting that the Federal Reserve's Term Asset-Backed Securities Loan Facility will spark up to $20 billion of new structured-finance offerings in its first month. The expectations indicate that industry players are developing a clearer picture of how the $200 billion TALF program will stimulate the now-frozen securitization business after it kicks in next month. At that point, the Fed will begin allowing investors in triple-A-rated bonds backed by auto loans, credit-card receivables, student loans and small-business credits to post those holdings as collateral for low-cost government loans. At least one issuer, auto lender World Omni, is already shopping an asset-backed bond offering that would appear to qualify for such exchanges. The $500 million deal is secured mostly by loans on Toyota cars sold by the automotive-dealership arm of World Omni's parent, JM Family Enterprises. While World Omni hasn't explicitly promoted the issue as TALF-eligible, market players certainly see it that way - in part because the underlying assets are of a particularly high credit quality. The transaction also fits in with expectations that auto lenders, especially cash-starved Chrysler, GMAC, and Ford, will be the first to take advantage of TALF. Credit-card lenders would soon follow, with industry insiders identifying Bank of America, J.P. Morgan and Citigroup as candidates. However, opinions differ on exactly how much deal flow TALF will create. The securitization co-heads at one investm... http://www.abalert.com/headlines.php?hid=138844 ---------- CORRECTION: A Jan. 16 article, quot;Spread Tightening Seen as Short-Lived Trend,quot; incorrectly stated that Ford had received support from the U.S. Treasury Department's Troubled Asset Relief Program (TARP). The automaker hasn't accepted government bailout money. ---------- Don't expect the values of asset-backed securities to continue rallying at the torrid pace seen last week. Industry insiders anticipate that now-tightening spreads on those issues will level off in the U.S. within the next two weeks or so, as investors retreat from a brief surge in trading activity that boosted values by up to 250bp. The upshot is that overall values will remain far below pre-credit-crunch levels for the foreseeable future. Some buysiders need the breather so they can gauge the impact of the federal government's latest efforts to prop up credit-market liquidity. They are also anxious to see whether an annual wave of corporate earnings reports indicates where the recession is headed. J.P. Morgan was the first major bank to release earnings this week, boosting its tally of writedowns on mortgage-related products to $13.3 billion since the credit market collapsed in mid-2007. In announcing the results, chief executive Jamie Dimon predicted that the battered economy would get worse before it gets better. The U.S. Treasury Department also moved this week to deploy the remaining $350 billion in its Troubled Asset Relief Program (TARP). The $700... http://www.abalert.com/headlines.php?hid=138714 Securitization volume is likely to rebound moderately this year in the U.S. and decline in Europe, as both markets struggle to pull out of a prolonged funk. Even that's just a guess ventured by less than 20 industry insiders who are willing to predict whether the battered structured-finance market will start recovering from a worldwide credit crunch that took hold in mid-2007. In a display of widespread uncertainty, most other securitization professionals feel that projecting what will happen over the next 12 months is a crapshoot at best. In the U.S., a field of 10 market players who responded to a survey by Asset-Backed Alert have predicted, on average, that issuers will sell $218 billion of public and Rule 144-A asset-backed securities in 2009. That translates into a 44 increase from the 2008 issuance total of $151 billion, which was down by $447 billion, or 75, from the year before, according to the newsletter's ABS Database. In Europe, eight forecasters have called for structured-finance issuance to plunge by 45 this year, to the equivalent of $564 billion. Among other things, they figure the European Central Bank and Bank of England will eventually pull back after propping up the market for more than a year. Their projections include bonds sold to investors and those funneled into funding agreements with the central banks. Like their U.S. counterparts, issuers in Europe are still finding it extremely difficult to line up buyers for their paper. Only $178 billion of the region's offerings... http://www.abalert.com/headlines.php?hid=138608 Banks may soon lose access to leftover cashflows that they typically pocket from their credit-card securitizations. The cause: an ongoing deterioration in the performance of credit-card pools. As defaults continue to mount amid weakening economic conditions, many trusts are nearing the point at which they must quot;trapquot; incoming payments - that is, create special reserve accounts with capital that remains after bondholders receive routine installments. Under normal circumstances, that money, or excess spread, would flow to the issuer throughout the deal's life as profits. But these are hardly normal times. Cash-trapping mechanisms are designed to protect investors in credit-card securitizations from losses in the event that poor asset performance causes their holdings to unwind ahead of schedule. They usually kick in, on a graduated scale, when a pool's excess spread dips below a pre-determined level of 4-4.5 for three consecutive months. As of the end of October, the average trust was barely above that point, at 4.51 according to Samp;P. That followed a dramatic drop brought on largely by rising defaults in the preceding months, from levels that usually ran above 7. It isn't clear which banks might be forced to trap cashflows, but most large-scale issuers of credit-card bonds are in the danger zone. Bank of America operates trusts whose excess spreads are below 4.5, according to Fitch. J.P. Morgan oversees some pools with spreads below 5. What's more, widespread expectations are that excess spreads will... http://www.abalert.com/headlines.php?hid=138501 Structured-product investors remain skeptical about government efforts to bail out Chrysler, General Motors and possibly Ford. Even after the U.S. House of Representatives passed a $14 billion rescue plan for Chrysler and GM Wednesday, bonds backed by their car loans - and Ford's - were trading at massive yields. The message: failures are still likely, even if the rescue measure ultimately clears the Senate and is signed into law. The sentiment is evident in an increasing differential between the yields investors are demanding on bonds backed by loans from the Big Three automakers and offerings from their healthier competitors in Japan. For example, triple-A-rated 1.8-year securities issued earlier this year by Ford and GM affiliate GMAC have been making the rounds on the secondary market at prices of just above 80 cents on the dollar, a trader said. That translates into spreads as wide as 1,400 bp over Eurodollar futures. By contrast, Honda fetched spreads of 350 bp over Libor for the 1.7-year senior piece of a $297 million transaction it priced via bookrunner J.P. Morgan on Dec. 8 (see Initial Pricings on Page 10). Similar bonds have been trading just above 500 bp over Libor on the secondary market. Even a few weeks ago, there was a far smaller gap between returns on bonds from the two categories of automakers - with the growing disparity driven by falling values among issues from U.S. players. Single-A and triple-B subordinate securities from the Big Three have lost 10-15 cents on the dollar... http://www.abalert.com/headlines.php?hid=138397 Don't look for a stream of new securitizations to follow a $466 million auto-loan transaction that Nissan completed this week. Contradicting earlier talks that a successful offering from a well-regarded player like Nissan might unclog a U.S. issuance pipeline that has been frozen since the beginning of October, the word now is that few additional deals are likely to price by yearend. In fact, the only other securitization that might be in the market is a $700 million auto-loan offering that Barclays has been shopping on behalf of Volkswagen - and the general sentiment is that wide-ranging pressures will keep new-issue production glacially slow into 2009. Even before issuance shut down with the start of the fourth quarter, once-hefty issuers like American Express, Bank of America, Citigroup and J.P. Morgan were keeping their distance from the market. And many other big-time players, including Capital One and Sallie Mae, have signaled that they won't be back anytime soon (see listing beginning on Page 10). quot;I think it's just going to be spotty,quot; said an analyst at an investment bank. Still, he noted that there is a backlog of supply that will eventually prompt more issuers to test the market. quot;There's not a single consumer-finance company that could not [benefit from using] securitization right now to fund themselves.quot; There are some reasons to be optimistic. Nissan's deal, Nissan Auto Receivables Owner Trust, 2008-C, created considerable buzz as it was boosted by $100 million shortly before pricing ... http://www.abalert.com/headlines.php?hid=138289 ---------- CORRECTION: A Nov. 21 article, quot;Citi, Morgan Stanley Speeding Up Retreat,quot; contained errors. The item overstated layoffs within John Wood's analytics group, which was reduced to 19 people from 27. In the mortgage-finance division, Jon Riber remains at Citi, contrary to what was stated in the piece. Matt Fallon's name was also misspelled. The article misstated the roles of mortgage-finance head Susan Mills and securitization chief Ted Yarbrough. Overall, Citi says it employs about half as many securitization staffers as it had on board a year ago. ---------- Citigroup laid off a wide swath of its structured-finance team on Wednesday morning, as Morgan Stanley also pruned its staff. Citi's cuts removed a large chunk of its analytics, mortgage-finance and CDO-underwriting units, signaling that the once-mighty investment bank is further reducing its already diminished involvement in the securitization business. Likewise, Morgan Stanley appears to be implementing a plan that would essentially gut its asset-backed bond team in New York. Citi carried out its dismissals as part of an effort to reduce its overall headcount by 50,000, adding to a string of layoffs that have already taken place at the bank since the credit crunch began. Word has it that more layoffs are coming. The securitization-analytics group was perhaps the hardest hit this time around, with just group head John Wood and two analysts remaining from what was a... http://www.abalert.com/headlines.php?hid=138183 Securitization professionals are getting worried that the inauguration of President Barack Obama in January will usher in an onslaught of regulatory constraints that they've been able to beat back in the past. The start of the Obama Administration, coupled with larger Democratic majorities in both the House and Senate, will likely lead to a revival of proposals that could make it more difficult, expensive or risky to issue and buy structured-finance products. Indeed, overhauling the U.S. financial system quot;is one of the first missions of the new Congress,quot; Sen. Charles Schumer (D-N.Y.), said Monday in an address at a SIFMA conference at the Marriott Marquis hotel in New York. Schumer is a member of the Senate Banking Committee. The prospect of a radical new regulatory regime has especially riled the market for private-label mortgage-backed securities, contributing to a recent lack of liquidity and plummeting bond values. quot;The markets are very skittish, and I think rightfully so, about that transition,quot; said Greg Peters, head of U.S. credit strategy at Morgan Stanley. He spoke during a panel discussion at the SIFMA conference, which focused on the U.S. Treasury Department's financial-system bailout. Securitization professionals are particularly concerned that the idea of applying quot;assignee liabilityquot; to MBS issues will get a new lease on life, even though they previously succeeded in pushing back that threat several times over the years. Such a measure would permit mortgage borrowers who feel... http://www.abalert.com/headlines.php?hid=138084 A consensus is developing that many banks have understated how badly they'll be hurt by defaults among holdings of unsecuritized mortgages. Even as they have taken tremendous writedowns on portfolios of home-loan bonds since the housing market fell apart last year, some large and mid-size financial institutions are still booking their whole-loan investments at par or close to it. And that means they'll wind up with even bigger losses if predictions of heavy defaults among those credits prove correct. Sources named Citigroup as one company that may be holding mortgages at values that don't fully take expected default rates into account. And that's after it logged $46.8 billion of debt-product writedowns since mid-2007. Another candidate is Wells Fargo, which has avoided major loan-loss provisions so far. The company will take some loan-related adjustments for assets it expects to take on with its purchase of Wachovia, however. Financial institutions have to mark down loan portfolios inherited through purchases of other lenders, even while often leaving their own mortgage books untouched. That said, many specialty mortgage lenders have bumped up loan-loss provisions on their own. So has Wachovia, while taking $8.8 billion of credit-crisis markdowns. Privately held regional banks could also take big hits. Hints of what might be in store for home-loan portfolios can be seen among bonds backed by similar debt pools. In that area, 802 classes of securities experienced defaults during the third quarter of 2008, up from 635... http://www.abalert.com/headlines.php?hid=137977 Barclays and RBS Greenwich have shifted the leadership of their CDO-underwriting teams, while UBS cuts back its staff. At Credit Suisse, meanwhile, U.S. CDO-banking head Steve Hilfer was gone as of today. The changes at all four banks add to what has been the most tumultuous year ever for CDO professionals, as the sector gets kicked around amid the worldwide credit crunch (see listing on Page 6.) Barclays appointed Jason Schechter as head of its CDO group this week, handing the former Lehman Brothers staffer a role most recently played by Kristofer Kraus. RBS assigned Adam Siegel as its top CDO banker in Greenwich, Conn., and Darron Weinstein as his London counterpart, giving them responsibilities last held by Vincent Dahinden. It also installed Matt Katke as co-head of CDO trading in Greenwich. Under Schechter, Barclays' CDO unit is concentrating on secondary-market trading - a focus brought on by a drought of new-issue activity. He arrived at the bank via its agreement last month to buy parts of the bankrupt Lehman, where he headed CDO trading. Kraus was leaving around the same time. Schechter now reports to former Lehman colleague Eric Felder, who last week took over as Barclays' head of credit-product trading. Lehman had named Felder as co-head of its fixed-income division and awarded him a $41 million retention package in September, just days before filing for bankruptcy protection. Barclays' appointments come with the bank nearing the end of a staffing shuffle triggered by its purchase of Lehman.... http://www.abalert.com/headlines.php?hid=137870 Rising defaults among private-label credit-card accounts are prompting some lenders to think about unwinding securitizations backed by those assets. Companies rumored to be mulling such moves include clothing retailer Charming Shoppes and Sterling Jewelers, the operator of the Kay Jewelers and Jared chains. At issue is a jump in the number of accounts that retailers are deeming uncollectable. According to Fitch, securitized pools of private-label credit cards saw their charge-off rates climb to nearly 9.4 last month, from 8 in March and 6.4 last September. In some cases, those losses are large enough to make it uneconomical for lenders to continue operating trusts that were used to securitize the cashflows. Now the preferred strategy among those shops appears to be to liquidate the underlying receivables, including defaulted accounts, and use the proceeds to repay bondholders. quot;There is a lot of stress building around the edge of the private-label sector,quot; said one buyer of charged-off portfolios. Some bondholders also favor trust liquidations in cases where issuers can no longer turn profits through their securitization programs. It's possible they fear that losses will only rise going forward, threatening the principal they are owed. quot;The money that is coming in from these trusts isn't enough to pay the service providers, like the lawyers and trustees that maintain it, and give bondholders their cut too. Liquidating is becoming the best option,quot; the charge-off buyer said. The liquidations might... http://www.abalert.com/headlines.php?hid=137771 The asset-backed commercial paper market showed signs of recovery this week, as sweeping government efforts to bolster financial markets made investors more comfortable with longer-term conduit issues. It also helped that Lehman Brothers' credit-default swap obligations were settled via an Oct. 10 auction, ending a situation that had many institutions with exposure to the bank dumping investments in favor of hard cash. The confluence of factors caused yields on 30-day conduit paper to fall below 4.4 this week, after spiking to a record 5 on Oct. 13 - offering solid evidence that investors who shunned the market in recent weeks are now trickling back. The uptick in demand is also creating some hope for the battered term-securitization business, as the conventional wisdom is that short-term markets are first to recover from liquidity crunches. Industry insiders also think the term market will improve as the federal government's Troubled Asset Relief Program (TARP) kicks into gear. However, the consensus is that a further rebound on the commercial-paper side will be necessary before longer-term asset- and mortgage-backed issues follow suit. For now, the market for term deals remains in a funk. Trading this week was light to nonexistent, as prices weakened or hovered near record lows. Still, the developments for commercial-paper players are encouraging. quot;It seems that there's some thawing,quot; said Debbie Cunningham, who oversees taxable money-market funds at Federated Investors, a $333 billion firm in Pittsburgh....