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NOVEMBER 21, 2005

VOL. III, NO. 46

ITALY PREPS 1B GREEN ENERGY SECURITIZATION

Chinese Banks Ready First

Securitizations
Two Chinese banks are preparing the
countrys first securitizations in the form
of mortgage-backed and asset-backed
securities pilot deals. Analysts say the
transactions could establish a model for
Chinese securitizations going forward.
See story, page 2

ABS
Baker & McKenzie Hires
Norton Rose Team
FGIC To Expand Structured
Credit Group

(continued on page 8)
3
3

CMBS
Trepp To Add Defeasance Function 3
CSFB Prices Condo Conversion Deal 3

CLOs/CDOs
Mezzanine CDOs See Boost
From Wider HEL Spreads
4
Nomura Markets Private Equity CFO 4
Ryan Beck Forms CMO
Distribution Group
4

Strategies
CenterPoint Plans Stranded Cost Deal 6

Departments
Weekly Recap
CMBS Trading Matrix

6
8

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Electricity bill tariffs in Italy that fund green-friendly energy are set to be securitized in a
deal reckoned to be worth 1 billion ($1.2 billion). The transaction, currently being
structured, is being jointly arranged by Nomura Securities, Lehman Brothers and Banca
IMI and is expected to come to market in the first quarter next year.
GRTN, the government-owned energy supplier, is required by law to buy power
generated by environmentally-friendly CIP-6 plants. The difference between the costs and
revenues resulting from the sale of CIP-6 energy is covered by a tariff, known as A3, which
is placed on all electricity bills. One official believes GRTN will use the money raised from
the securitization of these receivables to reduce the cost of electricity bills by advancing a
portion of the revenues to CIP-6 plant owners. The revenues could also be used to fund a

DEUTSCHE BANK RISK MANAGEMENT TEAM

SEES HIGH TURNOVER
Deutsche Banks entire U.S. exposure risk management team has turned over the past year,
with eight analysts leaving the group. The group quantifies risk on a variety of structured
products, equities, derivatives and commodities.
In little more than a year analysts Nesan Srivamadevan, William Chan, Qing Yan,
Liping Wang, Scott Grob, Mohit Dayal, Krishna Ravishankar and Jim Anderson have all
left the U.S. group. The group has also had three regional headsSajjad Ahmed Cheema,
the current head, replaced Colin Kim, who replaced Sebastian Zugman.
A move to shift the groups analysts from specialists to generalists contributed to the
(continued on page 7)

PLANNED INDEX HAS FIRMS EYEING A BOOST

FOR SYNTHETIC ABS STRUCTURING
An index of credit-default swaps on residential
mortgages, launching early next year, could be
a big fillip to firms looking to structure
baskets of synthetic asset-backed securities.
The ABX.HE Index will consist of a series of
five sub-indices, each consisting of 20-25
CDS referenced to U.S. residential mortgagebacked securities.
The index will offer a standardized way of
buying or selling the underlying market, officials
said. The current synthetic ABS market consists mostly
(continued on page 8)

Check www.securitizationnews.com during the week for breaking news and updates.

SN112105

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Securitization News

www.securitizationnews.com

November 21, 2005

At Press Time
Structured Finance Buysiders
Hot Commodities This Year

EDITORIAL

PUBLISHING

TOM LAMONT
Editor

ELAYNE GLICK
Publisher
(212) 224-3069

STEVE MURRAY
Deputy Editor

Structured finance buysiders were in hot demand this year, with hires shooting
up 60% over last year. The increase came as investment-grade credit recruitment
fell after two years of hectic hiring. Given where credit spreads have been this
year, its tougher for the [investment-grade credit] group to generate the kinds of
revenues and profits weve seen in other asset classes, said Jim Houston,
managing director in the investment management practice of Russell Reynolds
Associates, a New York-based executive search firm.
Compensation packages have risen by more than 25%. For example, a
structured product portfolio manager with 10-15 years experience could expect a
total package of $1-1.6 million at a large firm. And analysts saw compensation
swell to $300,000-500,000. But with base salaries fairly stable, most of the
growth has been in bonuses, Houston noted.

PETER THOMPSON
Executive Editor [Chicago]
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SAMANTHA ROWAN
Managing Editor
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MATTHEW TREMBLAY
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JANA BRENNING, KIERON BLACK
Sketch Artists

Chinese Banks Ready Pilot

Securitizations
China Construction Bank and China Development Bank are readying the
countrys first securitizations in the form of mortgage-backed securities and assetbacked securities pilot deals. Analysts predict that if successful, the transactions
will establish a model to allow for Chinese securitizations going forward.
China Development Bank intends to securitize around CNY5.3 billion
($656 million) worth of loans issued to industries including telecommunications,
coalmining and railways. The AAA-rated tranche represents almost 70% of the
asset pool, a further 24% are A-rated while the remaining 6% is unrated. The
China Construction Bank deal is covered by CNY3 billion ($371 million) of
commerical mortgage loans in Shanghai. The maturity is three, five and 10 years.
No rating for this deal has yet been published.
Jet Zhou, analyst at Fitch Ratings in China, said the legal environment had
proved to be a significant obstacle to securitization. Regulators spent several years
researching the possibilities, but initially would not approve any securitizations, as
they wanted to protect investors. He added last year the state council decided to
improve capital markets and again looked at securitization as an option. This
time, the Peoples Bank of China approved it.
Tax laws remain an additional headache, and so offshore structures are likely to
be used due to unresolved legal issues, Zhou said. He hopes the two deals will be
issued by year-end.

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November 21, 2005

www.securitizationnews.com

Securitization News

ABS
Italfinance Readies First ABS Notes
Italfinance, an Italian securitization vehicle, is to issue 1.1
billion ($1.3 billion) worth of asset-backed floating-rate notes.
The collateral consists of lease receivables from vehicle,
equipment and real estate leases originated by Banca Italease
and Mercantile Leasing, and is the first set of ABS notes by
the issuer. Standard and Poors and Moodys Investors Service
rated the notes A (AAA), B (A), C (BBB), and D (BB). The E
note was not rated. BNP Paribas and Finanziaria
Internazionale Securitization Group are acting as co-arrangers
on the deal, which is expected to close later this month
Barbara Florian, analyst at S&P, said a key feature is that the
credit quality of Banca Italease supports the transactions C and D
notes. Essentially, this ties the C and D notes directly to Bancas
credit rating. Banca Italease bought Mercantile Leasing in June
2004. It is the 12th securitization originated by Banca Italease,
and the second securitization originated by Mercantile Leasing.
Calls to BNP and Finanziaria were not returned by press time.

Four To Be Reckoned With

Baker & McKenzie To Expand

Securitization Practice
Baker & McKenzie is poised to expand its presence in the
European securitization market after hiring a four-person team
from rival law firm Norton Rose. Jonathan Walsh, Vincent
Keaveny, Simon Porter and Bruce Somer will start work at
Baker & McKenzie Dec. 5. We felt wed taken it as far as we
could at Norton, Walsh said, explaining the quartet built the
securitization department there from scratch. Walsh will lead
Baker & McKenzies global securitization practice out of
London.
Walsh, who works in synthetics, asset-backed securities and
asset-backed commercial paper conduits and who previously
headed Nortons international securities group, said the groups
major objective is to develop Baker & McKenzies securitization
team into a market leader.
The team has previously been involved in collateralized debt
obligations, synthetics, repos and derivatives, and Walsh
stressed that building on the firms existing client base is a key
to develop the business. In particular, Keaveny has built a niche
in Portuguese securitizations while Somer is a derivatives
specialist. Porter has a strong capital markets background.
Earlier this year, Norton Rose hired two partners, Lawrence
Garside from Lovells and Tak Matsuda from Allen & Overy,
who form the hub of the replacement securitization team.

FGIC To Grow Structured

Credit Group
Financial Guaranty Insurance Co. plans to increase its
secondary structured credit markets group next year. The new
hire will be based in New York, analyze deals in structured
products and other sectors and report to Alex Masri, the
groups head. Masri may also add an originator to FGICs
London office said Brian Moore, spokesman. The expansion
comes in response to growth in the business, Moore said.
Last week FGIC hired Eddie Lee as a director in the group
responsible for sourcing secondary structured products. Lee
was formerly a principal in Banc of America Securities
structured securities team.

RMBS/CMBS
Trepp To Add Defeasance Function
To CMBS Model
Trepp, a New York-based commercial mortgage-backed securities
analytics provider, is adding a feature to its models that will allow
clients the ability to run different defeasance scenarios.
Defeasance of CMBS loans reached $11 billion during the first
nine months of 2005. Many loans are structured to have a short
open period just prior to their scheduled maturity, during which
the loan can be prepaid. Trepp will add scenarios in which loans are
either defeased to maturity or through a loans open period, when
prepayment is possible, said Magnus Clancy, managing director.
Defeasance now makes up as much as 20% to 30% of a deal
and gathering information about which loans have been defeased
can be difficult, Clancy said. Its a situation that people need to
understand, he said. The company expects to unveil the
enhanced model in the near term, he added.

CSFB Prices Condo Conversion Deal

Credit Suisse First Boston priced the second-ever condominium
conversion deal last week amid a deluge of new issuance. In
addition to the condo deal, there were two fixed-rate conduits
and three floating-rate deals totaling about $9 billion being
marketed last week.
The AAA-rated tranche of the $1.4 billion deal was priced at
swaps plus 30, a couple of basis points wider than recent conduit
issuance. Reception was mixed as investors are still cautious
about the product, which is relatively new to CMBS market.
Indeed, CSFB completed the first-ever condo conversion deal

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November 21, 2005

earlier this year.

According to a pre-sale report from Fitch Ratings, most of
the loans have experienced sponsors who understand the local
laws concerning conversions in each geographic area. This is
critical to their actualization of conversion plans and Fitch
hopes that the CSFB deal will set a precedent for how these
deals are structured in the future, said Jenny Story, analyst.
Understanding the magnitude of construction and renovation

risk is vital in condo conversions. Projects that require

significant construction are more likely to have unforeseen
delays and cost overruns, she explained.
Investor interest in these deals remains high, with Fitch
receiving several calls asking for clarifications on some of the
details. There will probably be one to two more condo
conversion CMBS deals expected to hit the market before the
end of the year, analyst Aaron Wessner added.

CDOs/CLOs
Wider HEL ABS Spreads Boost
Mezz SF CDOs

Ryan Beck Fires Up Wholesale

CMO Distribution Group

Wider spreads on home equity asset-backed paper may boost cash

mezzanine structured products collateralized debt obligations.
Cheaper paper makes it easier for these CDOs to source collateral
and may lead to a short-term increase in issuance, said David Yan,
senior CDO analyst at Credit Suisse First Boston.
Spreads on triple-B HEL ABS recently widened 20 basis points
to 160bps, while triple-B minus paper widened 60bps to 260bps.
Wider spreads benefit CDOs still in their investment periods,
making it cheaper to replace bonds that have been paid down. The
cheaper sourcing leads to higher excess spreads and more credit
support, resulting in lower potential losses for investors, Yan said.
The cheaper paper could also lift issuance in the short-term.
Yan noted the effects may already be seen in the new issue
market with three such deals priced this month and four more
in the pipeline. This contrasts with an average of four deals
priced per month over the past four months, he said.

Another Diamond?

Nomura Floats Private Equity CFO

Nomura Securities is marketing SVG Holdings Diamond
Holdings II, a collateralized fund obligation backed by a
portfolio of 40 private equity fund positions in Europe and the
U.S. Revenue raised will be used to fund private equity
commitments, according to a market official. The first iteration
of the deal SVG Holdings Diamond I, which was shortlisted for
SNs Deal Of The Year (SN, 4/22), securitized a series of mainly
buy-out private equity funds in Europe and the U.S.
Initially, the deal is sized at 500 million, although the
manager can use the 500 million raised to maintain
commitments up to 700 million. The structure will also use a
series of secondary funds, and funds made in 1996, 1997 and
1998 will be bought and transferred over to the portfolio.
Market officials said the transaction, which has a five-year
investment period, is expected to be printed in January. Officials
at Nomura declined to comment immediately.
4

Ryan Beck has launched a group for the wholesale

distribution of collateralized mortgage obligations to brokerdealers, a first for the Florham Park, N.J.-headquartered firm.
The group expands an existing mortgage-backed securities
channel, which distributes MBS to institutional and retail
investors, said Drew Breittholz, managing director and head
of the wholesale MBS group.
Breittholz joined Nov. 2 from La Salle Broker Dealer
Services Division. Around the same time, Fabrizio Conciatore
and Rodney Davis joined as first v.p.s and salesmen. Breittholz
declined to divulge the fourth members name or role. All came
from La Salle.
The new group will buy CMO tranches and carve the
underlying collateral according to specific characteristics to
structure new CMOs. Some of the characteristics include
floating rate versus fixed and average life. The group plans to
access the larger regional broker-dealers to the smallest shops,
Breittholz said.
Breittholz may hire one or two more professionals, possibly
including a trader. He declined to give guidance on when the hires
might take place, saying they depend on the business growth.

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IMN-ABS West SN

11/9/05

9:48 AM

Page 1

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UBS
Wells Fargo Corporate Trust Services
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Dewey Ballantine LLP
Fortis Securities LLC
Greenburg Traurig, LLP
Kutak Rock LLP
LeBoeuf, Lamb, Greene & MacRae LLP
McDermott Will & Emery
Moodys Investors Services
Rabobank International
Riviere-Jenison Securities Ltd.
Schulte Roth & Zabel LLP
Wachovia Securities

Andrews Kurth LLP

Andrew Davidson & Co., Inc.
Applied Financial Technology (AFT)
Atlantic Information Services
Baker & McKenzie
The Bank of New York
The Bohan Group, Inc.
Brown Rudnick Berlack Israels LLP
Cadwalader, Wickersham & Taft LLP
Calyon
Capital Printing Systems
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Chapman and Cutler LLP

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Fitch Ratings
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KPMG LLP

Merrill Lynch
Nomura Securities International, Inc.
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Standard & Poors
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Lewtan Technologies, Inc
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Portfilio Financial Servicing Company
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Scottish Re
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Vintage Filings LLC
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Strategies
CenterPoint Targets Year-End
For Stranded Cost Deal
CenterPoint Energy Houston Electric plans to come to market
by the end of the year with a $1.875 billion stranded cost deal.
The transaction will allow the Houston-based company to
recoup costs incurred in the Lone Star states shift to a
deregulated electric market, said Darryl Tietjen, director of
financial analysis for the Public Utility Commission of Texas.
The CenterPoint Energy Transition Bond Company II 2005
series is the securitizeable portion of the $4.4 billion in transition
costs CenterPoint was seeking to recover, which includes interest.
The bonds are backed by nonbypassable charges on consumers

November 21, 2005

electricity bills. While the bonds are not guaranteed by the state
of Texas, the state pledges not to limit or revoke transition
charges until the bonds are paid. In addition, the bonds have a
true-up feature that lets the servicer adjust the charges every six
months to make timely principal and interest payments.
Combined, the features should give the transaction the triple-A
rating expected, Tietjen said.
The legal final maturity will be about 15 years with the latest
maturing tranche projected to mature in 14 years. The exact
number of tranches is still being worked out, Tietjen said.
CenterPoint is the servicer and Saber Partners is the PUCTs
financial advisor. The book runners are Lehman Brothers, Credit
Suisse First Boston and RBS Greenwich.

Weekly Recaps
The Weekly Recap is a summary of news briefs reported in our daily email. The information has been obtained from sources believed to be
reliable, but SN does not guarantee its completeness or accuracy.

Pacific Investment Management Company says it believes

that certain mortgage-backed securities will be hurt by a

slowdown in the U.S. housing market, Reuters reported. Scott
Simon, a portfolio manager, said that home affordability and
interest rate increases will hurt the housing market in 2006. This
is expected to cause prepayments to slow, he noted, adding that
prepayment speed is a major factor in assessing the value of
MBS. Simon said he believed that a slowdown in housing will
be more upsetting to private label MBS than to Freddie Mac- or
Fannie Mae-backed bonds.

A partnership between GMAC-RFC and Chilean bank

Grupo Security aims to develop and expand the market for

residential mortgage-backed securities in Chile. Through the
partnership, GMAC-RFC has agreed to purchase a subsidiary of
Grupo Security that is the third largest securitization company
in Chile. The partners aim to originate and securitize residential
mortgages.

Australian Seniors Finance is working on the first

securitization program for reverse mortgages in Australia. The

company plans to launch the program by mid-2006, according
to the Herald Sun. The program is being developed with
Commonwealth Bank in response to a growth in interest from
retired homeowners.

MBNA Corporation has completed a $1 billion securitization

6

of credit card receivables. The five-year, Class A notes were

priced at par and the offering was underwritten by Banc of
America Securities and Morgan Stanley. ABN Amro,
Citigroup, Goldman Sachs, Lehman Brothers and Merrill
Lynch also participated.

C-BASS has closed a $435 million residential securitization.

The deals $394 million investment-grade tranche was
underwritten by JPMorgan and Barclays Capital. This is CBASSs seventh public whole loan securitization this year.

Although U.S. CMBS delinquencies declined slightly in

October, Novembers levels are expected to feel the effects of the
hurricanes that hit the U.S. earlier this year, according to Fitch
Ratings. The agencys loan delinquency index declined two basis
points to 0.93% in October and 34 basis points since Januarys
rate of 1.27%. Servicer advances on hurricane-affected properties
have been on the rise since September, so the repercussions of
Hurricane Katrina, Rita and Wilma are likely to be reflected in
Fitchs November data, said Patty Bach, senior director.

Piper Jaffray hired Ben May as head of high-yield and

structured products in its corporate and institutional services

business. May will oversee high-yield and structured products
sales and trading and debt capital markets. He joins the firm
from Wachovia Securities, where he played a similar role,
Reuters reported.

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November 21, 2005

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Capital One Blazes Path In

Reg AB Disclosure
Capital One recently priced the first asset-backed securities deal
to disclose FICO scores. The $500 million, five-year deal is
backed by credit card receivables and is the first to disclose that

DEUTSCHE BANK
(continued from page 1)

turnover. Anderson, a mortgage-backed securities analyst, said he

was asked to assess the risk of commodities, emerging markets
and equity derivatives. Cheemas management style also was a
factor and he did not appreciate the complexity of the sectors
they covered, Anderson added. Hes said, All I have to do is talk
to a trader and I can understand the market, Anderson said.
The generalist approach leads to basic errors in assessing
risk, Anderson and other former analysts said. For example,
when running a stress scenario on a home equity
securitization, Cheema would double spreads regardless of the
collaterals characteristics. Or he would stress prepayment
speeds instead of credit spreads, even in products such as

/6%
#52 2   
2%' 2%.4  
)34% ,9
2%$

Securitization News

level of detail since Capital Ones first foray in the summer of

2002. Such disclosure is required by Regulation AB, which goes
into effect Jan. 1.
Goldman Sachs and Lehman Brothers co-led the deal. The
deal was priced on Nov. 16 at four basis points over one-month
LIBOR and is expected to close Nov. 23.

student loans, they said.

If I were being cynical, Id say chasing away the group is a
strategy to do away with risk management. A lot of times the
middle office or back office and trading are natural enemies,
said Mark Adelson, head of structured finance research at
Nomura Securities International. Adelson noted, however,
that at such an institution this strategy would be unlikely.
Miroslav Visic is the sole securitization expert left in the
group. This has not gone unnoticed by other parts of the
bank. Group heads in credit departments have complained to
me [the new hires] dont know what theyre doing. Theres
certainly a lot less confidence in exposure management, an
official said.
Cheema and Mausumi Paul, global head of exposure
management, declined to comment.
Olivia Thetgyi

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November 21, 2005

CMBS Trading Matrix NOVEMBER 16, 2005

Conduit
Newly Originated Mortgage Collateral, Balloon, Call-Protected,
Multiple Borrowers, Zero Delinquencies, Par, 5 yr AAA is narrow
window, 10 yr AAA is senior AAA
Rating

5-yr
Fixed

10-yr
Fixed

5-yr Float
(uncapped)

AAA

Outstanding CMBS

U.S. Swap Spreads

One week and four week returns and excess returns for four classes
of CMBS included in Banc of America Securities CMBS index.

Premium to swap fixed-rate CMBS to floating-rate bonds,

based on three-month LIBOR

Rating

One Week
Return

Excess
Return

Four Week Excess

Return
Return

5
year

10
year

S+25

S+31

L+15

AAA (10 yr)

+0.99%

+1.7

-0.39%

-36.6

Current Spread

+49

+54

AA

NA

S+45

L+37

AA

+1.02%

+3.1

-0.31%

-29.0

1-Week Change

-1

+0

NA

S+55

L+74

+1.03%

+3.5

-0.25%

-23.9

4-Week Change

+2

+6

BBB

NA

S+115

L+209

BBB

+1.03%

+1.2

-0.40%

-39.6

12-Month Change

+7

+12

BBB-

NA

S+170

L+339

BB

NA

T+310

NA

Source: Banc of America Securities

ITALY PREPS
(continued from page 1)

stabilization of the A3 tariff, which currently floats according to

subsidy requirements. Market sources view the transaction as
much a political move by the state as much as an economic one.
Market officials suggested this may be part of a program, not
just a stand-alone issuance. They also predicted other utilities in
Italy may follow up with similar securitizations.
Hugh Leask

PLANNED INDEX

investors will be able to access daily levels of where the index is

trading. The index is being developed by CDX IndexCo., a
consortium of 16 investment banks, and administered by Markit
Partners. Ben Logan, v.p. at Markit in New York, declined
comment.
Abigail Moses

Quote Of The Week

We felt wed taken it as far as we could at Norton.Jonathan
Walsh, a partner at Baker & McKenzie, explaining why he and
three partners left law firm Norton Rose (see story, page 3).

(continued from page 1)

of CDS on single names. To express a view on the underlying

market, or on a basket of single-name CDS on ABS, investors
must handpick individual names from a wide variety of assets.
Synthetic collateralized debt obligations offer exposure to baskets
of CDS on ABS, but they are selected and packaged by
individual managers.
If the index generates enough volumes, dealers see it as path
to a more efficient, liquid and transparent market. The index
provides investors with a more efficient tool to take positions on
the underlying market, said Brian McManus, head of CDO
research at Wachovia Securities in Charlotte. Its a little early to
tell how liquid and how useful a tool it will be, said another
official. We clearly are going to be making markets in it. Its
going to be good for people trying to use it as a hedge and who
dont have the time or want to drill into security selection.
Right now, there is a large menu of securities traded
synthetically, but not much liquidity in any one security, an
official said, noting the AAA through BBB minus sub-indices
will allow traders to focus on smaller pools of assets and
investors to hedge and speculate on those pools. The hope is
that the index will provide more liquidity on both sidesfor
buyers and sellers of protectionand that there will be more
volume because of that.
The names in the indices will roll every six months, and
8

One Year Ago In Securitization News

MeesPierson was marketing a single-tranche collateralized debt
obligation with a constant-maturity swap payoff to its high-networth clientsCollateralized debt obligation professionals
earmarked the retail and high-net-worth markets as the next
frontiers for the sector.

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