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Issuance Down Despite the Positive Headlines: The slight boost to the market's mood was not reflected
Asset Securitization Report--SourceMedia (August 4, 2008)

Gabrielle Stein

Though spirits were higher than usual last week, trading remained flat in the secondary market and investors' focus was on selling. New issuance on the primary side was, as usual, meager.

Traders reiterated their expectations for a slow consumer ABS market at least until after Labor Day.

Several deals did get through the market, including Bank of America Credit Card Trust Class A 2008-9 Notes. The $1 billion single-tranche securitization has a one-and-a-half-year average life. Banc of America Securities managed the deal with Barclays Capital, Citigroup Global Markets and RBS Greenwich Capital as co-managers.

HSBC is floating a $3 billion CLO called Credit Asset Trust while Sallie Mae has launched a $981 million student loan securitization: SLM Student Loan Trust 2008-8. The SLABS deal came to market via RBS Greenwich Capital, Merrill Lynch and JPMorgan Securities. The deal is slated to close on Aug. 5, according to the ASR Scorecard database.

Sallie Mae's transaction, which was divided into five pieces, priced the triple-A-rated A1 tranche at 50 basis points over three-month Libor. The triple-A A-2 tranche priced at 90 basis points over three-month Libor, while the triple-A A3 tranche priced at 115 basis points over and the triple-A A4 tranche priced at 150 basis points over. The double-A B tranche priced at 225 basis points over three month Libor.

This latest transaction from the student loan issuer differs in structure from the company's previous offerings. The credit enhancement levels for 2008-8, including funds in the reserve account, have increased from the 2008-7 deal. The more recent deal's enhancement levels are at approximately 4.84% for the class A notes and 1.90% for the class B notes, according to a Fitch Ratings presale report.

Enhancement for the class A notes was 3.97% for 2008-7, 4.46% for 2008-6, 6.54% for 2008-5, 5.41% for 2008-4, 3.76% for 2008-3 and 3.00% for 2008-2. Enhancement in the form of overcollateralization for the class B notes was 1.01% for 2008-7, 1.50% for 2008-6, 3.65% for 2008-5, 2.49% for 2008-4, and 0.79% for 2008-3, Fitch said, with no overcollateralization in transactions closing before 2008-3.

Overall, the consumer ABS sectors continue to see spreads widen out because of the lack of new issuance.

New deal volume in July will be about half of June's volume, according to Merrill Lynch. The bank also said that it expects credit card issuers to focus on short-dated, triple-A rated deals.

While the nonexistent new issuance on the CDO side makes consumer ABS seem robust, there are more fire sales than ever. Merrill Lynch began the week with a fire sale of super-senior ABS CDO securities, pricing the assets at 22 cents on the dollar and reducing its exposure to ABS CDOs by $11.1 billion.

At least 10 deals have liquidated during the month of July alone, according to Citigroup. UBS by itself has already liquidated, or is in the process of liquidating, more than $20 billion of ABS CDOs. Overall, almost $40 billion in deals have completed liquidation, while another $30 billion are awaiting a similar fate, Citigroup said.

One positive market development was that Fitch Ratings announced an enhanced version of its U.S. residential mortgage loss model, ResiLogic. The updated model will include metropolitan statistical area (MSA) and national macroeconomic risk multipliers. The model will also now include analysis of seasoned loans, and will take into account loan payment history and house price changes after loan origination. There will also be additional penalties for loans originated with stated income or no income/no asset documentation programs. The model also includes additional penalties for loans originated with second liens and reduces credit for loans with mortgage insurance. The MSAs include the 25 areas that have historically demonstrated the most nonconforming mortgage lending activity, Fitch said.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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