securitization newsletterjuly04.qxp by wuzhenguang


									U.S. Securitization Group
                                                                                                            A member of BMO Financial Group

Asset-Backed Update
August/September 2004                                                       

From the ABCP Trading desk                                                                  Implied Fed Funds
Soft Patch or not...                                                                      Futures Rates (Aug 19)

The Fed increased the Fed Funds rate the expected 25 bps
at the August 10th meeting. Unexpectedly, the Fed dis-
counted, in distinctly “unmeasured” terms, the concept of
a current economic “soft patch”. They apparently don’t
believe the U.S. economy is spinning its wheels like a 2-
wheel drive Yugo SUV trying to navigate quicksand. The
core component of the statement reads, “In recent months,
output growth has moderated and the pace of improvement
in labor market conditions has slowed. This softness likely
owes importantly to the substantial rise in energy prices.
The economy nevertheless appears poised to resume a                              Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05
stronger pace of expansion going forward.” It will be inter-          Source: Bloomberg
esting to hear what the Fed has to say if we get another
lackluster payroll report or core CPI in September. I doubt         the bank’s website
Alan Greenspan wants to win a Gold Medal in Double-Trap             ics/focus/20040813/focus.pdf
Shooting of Presidential Re-Election Hopes….                           The article focuses on the impact of higher energy prices
   However, Mssr. Greenspan and Company currently indi-             on the U.S and world’s economies in a very concise way. It
cate that, much like a sock-hop at St. Juliana Junior High,         shows the effects of the upward surge in oil prices on over-
it’s strictly “hands-off” their measured rate hike policy.          all growth ($10 increase in oil equals 0.3% decline in US
That’s even if the economy (or the DJ) starts to spin slow-         GDP growth, global –0.5%), inflation (lesser impact than in
dance (or slow down) music. Come on, Sister Bruno, we               past decades) etc. Quite a nice piece brought to you by our
want to shuffle to “Stairway to Heaven” we promise to keep          crack Economics staff.
the width of a phone book between us… Of course, the Fed
has the luxury of analyzing nearly six weeks of additional
data before they need to make a decision at their next meet-
ing on September 21. Let’s all watch the market play
                                                                      Inside this month
defense and investors and issuers alike crowd around the
                                                                      AUTO ABS SECURITIZATION                                       4
Fed meeting dates like college kids around a free pizza;
that is, until the Fed sends a clear signal either way. I’ll take     SPORTS LEAGUE AND FRANCHISE
double anchovies and my mortgage rate on hold, please.                SECURITIZATIONS                                               5
   Placing much of the blame on rising energy prices, the             HARRIS NESBITT SOLE LEAD
Fed appears to believe once energy prices moderate the
                                                                      ON LIQUIDATING TRUST                                          7
economy will continue on its upward track. However,
                                                                      TERM SECURITIZATION: STRUCTURING
Douglas Porter, CFA and Senior Economist at BMO Nesbitt
Burns, thinks this is “debatable” and notes that “ …the fact          COMPLEX TRANSACTIONS                                          7
that global oil demand estimates are being revised furious-           UPCOMING INDUSTRY CONFERENCES                               10
ly higher – now pegged at over 3% this year, the biggest              TRANSACTION LIST                                            11
annual rise in 24 years – lofty prices look increasingly sus-
                                                                      NORTH AMERICAN ECONOMIC CALENDAR                            15
tainable…there appears to be more upside potential for
                                                                      ECONOMIC OUTLOOK                                            16
crude oil yet.” The BMO Nesbitt Burns Economics
Department has an excellent article titled “ $50 Oil:                 ASSET SECURITIZATION TEAM                                   17
Thinking the Not So Unthinkable” as a special feature on
                                                                                         Asset-Backed Update
U.S. Securitization                                                                                             August/September 2004

   The U.S. economy continues to sputter along like my
1974 Gremlin on a cold winter day. Retail Sales in July were                     Libor Mid-Month Comparison
weaker than expected at +0.7% headline level versus
+1.2% anticipated. However, June revisions were quite                                                                        Aug

strong revising to -0.5% from –1.2%. CPI showed -0.1% for             2.0                                                    July
the headline yet +0.1% for the core in July. Our economics
department rightfully describes it as a “tug of war between
higher food prices (+0.3) and lower energy prices (-                  1.0
1.9%)…won by the latter as core inflation ran at +0.1% for
the second month in a row.” However watch for energy to               0.5

bounce back in a big way this month as traders combine                0.0
                                                                            1 Month   3 Month   6 Month    1 Year
with true supply and demand pressures to move the mar-
ket. Housing starts were a mixed message as they surged in        Source: Bloomberg

July by 8.3% in July following a 7% reduction in June. This
                                                                            Treasury Yield Mid-Month Comparison
may be a “drying out” phase where starts were pushed to
July due to an unseasonably raining June. Like my                     6
Gremlin, the question is does it need a carburetor adjust-                                                                   August
ment or a re-build?                                                   5                                                      July
   The economics department’s assessment further runs                 4
“…if we get another poor payroll result or subdued core
CPI result next month (which will be third in a row in
either case), the Fed is probably on hold next month.” It             2
certainly would be hard to make a case for another rate               1
increase, the last before the Presidential election in
November, unless the economy shows a growing momen-                        2 Year    5 Year     10 Year   30 year
tum.                                                               Source: Bloomberg

   Industrial production rose 0.4% in July after a down
month in June at –0.5% (revised down from -.03%) in June.        oil reserves, is chaos epitomized in what is already the
This in turn caused capacity utilization to increase to          most volatile region in the world. Yep, I guess energy could
77.1% in July from 76.9% in June (revised down from              be considered the hottest of the hot spots. Every day brings
77.2%) Factories showed the strongest increase where             a new chapter in the never ending saga of crude oil and the
capacity utilization rose to 76.3% which is the highest level    industrialized nations who require it like their own life’s
in over three years. Perhaps factory owners have gone            blood.
through their backlogged inventory and are finally confi-           Iraq always seems to lead off because I guess when you
dent enough to “get their motors running.” Now, if U.S.          have thousands of rebels running around firing mortars at
automakers can figure out how to move a sedan without a          oil derricks, well, it’s just plain news. For an instant, a flit-
20% incentive, we’d be getting somewhere…                        ting moment perhaps now lost in time, it seemed like Mr.,
                                                                 the Iraqi people might actually accept Allawi’s brand-new
HOT SPOTS: SO HOT IT BURNS                                       government. Actually, anecdotally it appears as if the
The world is so hot it almost feels like summer in St. Louis.    prime minister has engendered a fair bit of good will with
Wait, nothing gets as hot as that… Let’s fuel up the old Vista   the average man in the street. For some reason it seems like
Cruiser for $1,037 and head over to Six Flags; perhaps not,      the Mideast seems simply to love a strong leader with an
they are shut down because of a brown out. Lots of issues        autocratic air. Could it be just what the doctor ordered to
dot the bleak energy landscape. Spot oil is $46 a barrel.        quell the insurgency and give Iraq the breathing room it
Russia, the second largest oil producer in the world, is         needs to establish a true rule of law? A true democracy,
stuck in a cage match with its very own largest oil produc-      well, that’s something else, perhaps later. The cleric al
ing company. Iraq, with one of the world’s largest known         Sadr and his army of the worst marksmen in the world                                                                                             2
                                                                                       Asset-Backed Update
U.S. Securitization                                                                                         August/September 2004

would beg to differ and seem to spend every waking               ing for a ride to the airport, can anyone help him out?
moment trying the best way to challenge the U.S Marines             The two pressing issues appear to be the economy and
and their allies. Seems like a good way to get your wish to      Iraq and associated national security items. President Bush
be a martyr if you ask me.                                       has been proclaiming the success of his tax cuts and his
   Russia sold its mineral and oil wealth for a pittance when    strong stance on security. John Kerry has committed to
“privatization” occurred in the early 1990’s. Pals of Boris      eliminating the tax cuts for the richest Americans while
Yeltsin and former heads of government ministries became         simultaneously tapping into the “Anybody But Bush”
billionaires overnight when they bought Russia’s reposito-       block. Mr. Bush is touting the recent increase in employ-
ries of incredible natural wealth for a few rubles. The oil      ment while Mr. Kerry says it’s the “wrong” kind of jobs
behemoth Yukos was created and quickly became the                being created. Really good stuff, we may have to wake up
poster child of this new billionaire boys club of former state   the long deceased Chicago voters from the Kennedy –
run, now privatized, corporations. Currently jailed on           Nixon election; they quite possibly will be asked to vote
fraud and embezzlement charges the CEO of Yukos (oil             once again.
tycoon Mikhail Khodorkovsky) worked behind the scenes
to acquire 44% of the company. Note that Yukos is the num-       ISSUING LEVELS: STEADY AS SHE GOES
ber one Russian oil producer and currently pumps 1.7 mil-        One month ABCP Tier 1 spreads remained steady in July
lion barrels a day, more than Iraq. That means when Yukos        and early August, trading in the LIBOR –5 to –6 ranges.
sneezes (or the government tries to give it a cold) the          Investors continue to purchase ABCP around the Fed meet-
Russian oil industry could possibly catch the flu. This in       ings, running short in between sessions, nothing new in a
turn could have huge negative implications on the world          rising rate environment. Some investors who took a posi-
economy. Yukos continues to teeter on the brink of bank-         tion over the last two weeks have been rewarded as levels
ruptcy. Oil production has been sporadically interrupted,        have retraced on thoughts that the Fed might pass on the
bank accounts frozen and executives jailed as the govern-        September rate increase. The LIBOR curve again steep-
ment seems intent on regaining control of the company,           ened: 1 Month LIBOR went from 1.42 on July 16 to 1.60 on
ostensibly to obtain “back taxes” it claims it is owed.          Aug 16 as the turn accounted for the August 10 Fed Rate
Sounds like the Wild West over there…and there’s a new           hike. The 3-month LIBOR moved from 1.63 July 16 to 1.72
Sheriff Put-in office. Sorry.                                    on August 16 and the 6-month LIBOR went from 1.89125 to
   It seems Khodorkovsky ran afoul of Russian President          1.92 as the market continues to anticipate economic condi-
Vladimir Putin when he supported the political ambitions         tions.
of some of Putin’s rivals. None of this gives great comfort to      ABCP outstandings remained relatively steady at
both domestic and international investors in any of              approximately the $697BN level for both June and July.
Russia’s nascent yet booming industries. It reminds me of        The slow erosion of outstandings that has dogged our mar-
season 4 of “Dynasty”… not exactly what the oil market           ket over the last year and a half appears to be on the way
needed when combined with the uncertainties in the               out as sponsors continue to find ways to meet the require-
Mideast and Venezuela.                                           ments of government regulations, including Fin 46.
                                                                    The actual percentage decline from peak ABCP out-
THE ELECTION: TOO CLOSE TO CALL                                  standings in 2001 to the current level is less than 9%. Eight
Ladies and gentlemen, we have ourselves a good old-fash-         new ABCP programs closed in the first half of 2004 with
ioned horse race. And no, that’s not a dig at Senator Kerry’s    almost twenty other new programs slated to close by year
looks or President Bush’s reputation as a cowboy. The race       end; extendable programs will make up over 50% of the
remains in a virtual dead heat. This election looks like it      new launches. In fact, current Extendable ABCP as of mid-
may come down to the very last undecided voter in the last       year have over $67 billion in outstandings for nearly 10%
undecided state. Republicans are hoping for a bounce after       of the market and seem to be growing at a prodigious rate.
their convention at the end of August and the Democrats          2004 looks like it may be a good vintage …
are hoping for a stumble. Both parties anxiously await the
debates in September to once again put their agendas
before the American people. After not making it onto the
California ballot for lack of signatures Ralph Nader is look-                                                                                        3
                                                                                       Asset-Backed Update
U.S. Securitization                                                                                         August/September 2004

Auto ABS Securitization– Are                                    commercial paper (ABCP) issuance volumes through both
                                                                single and multi-seller conduits, is difficult to gauge.
the Engines Revving or Have                                     However, if we use outstandings as a barometer, auto paper
                                                                continues to idle around 20% of ABCP programs total out-
We Stalled?                                                     standings. With Fitch’s estimates that more than $20 bil-
                                                                lion in auto loans have been WLS, in the past two years,
Once the auto finance industry partnered with the struc-        one can probably determine that issuance volume in this
tured finance market, automobile loans became one of the        sector is also up despite what might have been a ripple
largest and most consistent assets being securitized.           effect of refinancing ABCP securitizations into a longer
Securitization continues to be a cost effective means of        term solution by accessing the term ABS market when it
funding for automakers, and transaction structurers and         was most advantageous to lock in the lower interest rates
investors welcome the auto-backed securities “plain vanil-      for the foreseeable future.
la” structures, high quality assets, and the ease in which         An effective financing strategy coupled with consumer
delinquent receivables can be liquidated. Often described       logic that defied rationale behavior can best be demon-
as the securitization market’s “bread and butter”, an           strated if one looks at the Hummer dealers’ success – they
increasing number of auto finance companies continue to         achieved an impressive 80% boost over 2002 sales.
enter this arena. Over time, auto-backed securitizations        Despite economic uncertainty, rising gasoline prices, and
have expanded to include super-prime, prime, non-prime,         the Iraq war, sales of large and luxury sport utility vehicles
and sub-prime loans and, most recently, Whole Loan Sale         and full-size pickups experienced the most robust demand
(WLS) transactions. WLS involves the sale of the entire         growth in recent years. According to S&P’s June 2004 auto
loan from one financial institution to another and offers the   industry report, these segments accounted for a highly dis-
primary advantage of the potential for capital relief.          proportionate share of the Big 3 automakers’ 2003 earnings
   The economy, however, continues to be the driver of          and cash flow.
auto-backed securities issuances, which historically lag in        While auto sales in 2002 were strong, the steps taken to
lockstep with economic swerves and curves as evidenced          keep the pandemonium going despite the economic trials,
by the auto asset backed securities (ABS) market getting its    resulted in a downshift in obligor quality, longer contract
start shortly after the 1980-81 recession. Since the market’s   terms, and shrinking employment levels. Obligors already
inception in 1985, issuance has been moderate but steady,       strapped for cash, searched for ways to reduce monthly
stalling only briefly during the 1990-91 recession and again    payments without giving up access to the higher priced
with the most recent contraction in 2001.                       toys – their solution was to grab on to the extended loan
   When economic engines slowed in 2001, price discount-        term incentive and run with it. Given the consumers’
ing, cash rebates, and dealer financing incentives success-     desire and the auto companies need to keep the issuance
fully kept auto sales and issuance volumes steady in a mar-     race going, the incentives coupled with larger sticker
ket weakened by an unstable consumer base. One of the           prices and less financially sound consumers’ leaves these
incentives employed was to extend the contract terms.           receivables being exposed to the potential for higher loss-
Until the late 90s, contract terms were less than four years.   es. Since the extended financing terms translate into
Today, six-year loan contracts have become common, fol-         reduced principal payments, thus slowing pool reduction
lowed by a more recent move to change the incentive mix         and lengthening the time before consumers have substan-
to include seven-year contracts and three- to five-year con-    tial or any equity buildup in the vehicle, it’s no wonder that
tracts with balloon payments at maturity. All of this is        collateral performance in 2003 was less than stellar.
designed to make the automobiles more affordable to the            As the economy once again takes off, Fitch’s June 2004
general consumer and thus keep the issuance engine run-         Auto Delinquency Index reports that improved economic
ning.                                                           factors, employment growth across industries, and lower
   With dealer incentives and low interest rates taking the     personal bankruptcies have translated into stabilizing con-
lead in 2002, the auto issuance volume recovered quickly        sumer credit quality. This positive trend is reflected in the
with term Auto ABS issuance revving up to a record-setting      prime auto ABS sector. While weighted average delin-
$97.13 billion pace followed by the second most active year,    quencies of 60 days or more on prime auto ABS were 0.55%
2003, at a $91.58 billion issuance volume. Asset-backed         in May, up slightly from 0.42% in April, they remained vir-                                                                                        4
                                                                                        Asset-Backed Update
U.S. Securitization                                                                                          August/September 2004

                                                                 bad debt losses, any attempts to pass the higher funding
                                                                 costs along to consumers could have an adverse effect on
   With the flattening of revenues                               the industry.
                                                                    As if all of that wasn’t enough, according to an article in
   seen across sectors within the                                July’s edition of Advertising Age, automakers’ have a grow-
                                                                 ing love for buyers between 16 and 25 years of age. Why?
   sports industry, Harris Nesbitt                               It seems obvious, that they have the potential to sell them
                                                                 more cars and trucks as they age. With affordability as
   anticipates minimal growth in                                 these consumers’ biggest concern, they are, perhaps, the
                                                                 largest target for pre-owned models, which, similar to new
   sports-related, future flow                                   cars, are backed by warranties. Despite the untapped mar-
                                                                 ket, which would propel the automakers growth forward,
   securitizations over the near                                 these consumers risk profile may be more than the market
                                                                 can handle, resulting in a crash and burn in credit per-
   term.                                                         formance. After all, while it might be cool to show up in a
                                                                 luxury car, paying for it is a whole other matter. It appears
                                                                 that only time will tell what an economic recovery coupled
tually flat on a year-over-year basis. Annualized net losses     with a rising rate environment will do to this market sec-
(ANL) meanwhile dropped 3.8% during May 2004 to 1.31%            tor’s performance and durability – will we be spending
or 21% lower year-over-year. Cumulative net losses (CNL)         time on the race track or sidelined in pit row?
dropped 3.0% to 1.06% in May over April and remained             (Sources: Fitch, Moody’s, Standard and Poor’s, Advertising
4% lower than in 2003.                                           Age)
   As for the sub-prime sector, one is not as lucky in that
both delinquencies and ANL rose in May. Despite delin-
quencies increasing almost 6% to 2.41%, they still remain
11.8% lower year-over-year. However, even with the
                                                                 Sports League and
increase in May, delinquencies have posted five consecu-         Franchise Securitizations
tive months of decline on a year-over-year basis. ANL
crept up to 6.57% in May from 6.18% in April, a 6.2% rise;
                                                                 FUTURE FLOW SECURITIZATION
however, ANL are almost 19% lower than in 2003.
                                                                 The securitization of future cash flows is a technology
   The 2004 outlook for auto ABS remains positive, as the
                                                                 applied to a variety of asset classes including: export
economy recovers and helps fuel the pace. This year’s
YTD auto issuance volume of $35.5 billion was only slight-       receivables, credit card voucher payments, remittances,
ly lower than the $38.7 billion recorded during the prior-       trade payments, future royalties, film distribution rights,
year’s comparable period with total issuance being expect-       and sports receivables. Entities typically sell their rights
ed to be in line with pre-recession levels of $80-85 billion.    to future cash flows to a special-purpose, bankruptcy-
   Industry analysts are concerned, however, that automak-       remote vehicle. The vehicle in turn will issue debt secu-
ers are in for a rough ride ahead. There is speculation in the   rities backed by rights to those future cash flows. The
market that higher interest rates will affect automakers’        entity’s ongoing performance is a key driver in ensuring
profitability not only from increased costs but reduced          cash flows continue to be generated.
sales as consumers now struggle for free cash flow. With
consumers’ love for high incentive levels, automakers            COLLATERAL FOR SPORTS-RELATED
must address the longer-term effects of declining net pric-      SECURITIZATIONS
ing. In the past few years, borrowing costs for auto finance     Sports leagues and franchises have been able to use securi-
companies that have been low on average by historical            tization as an effective form of capital raising, leveraging
standards has mitigated the cost of incentives. Given the        off their history and popularity. Loan facilities, ABCP facil-
competition in the market and lenders’ memory of recent          ities, 144-A and term ABS transactions collateralized by                                                                                         5
U.S. Securitization                                                                                           August/September 2004

future cash flows have been utilized by sports leagues and       cover off risks or expenses during the post-season where
franchises as an alternative form of financing. Collateral       cashflow may be less stable due to uncertainty of the
for these types typically include: rights to future cash flows   broadcast schedule. During a transaction’s revolving peri-
under television and media (broadcasting) contracts, nam-        od, the league and franchises obtain distributions (excess
ing rights, advertising revenues, skybox rental revenues,        cashflow) once they have met minimum debt reserve
royalties from league and franchise licensed merchandise,        requirements.
ticket revenues, personal seat licenses and other revenues         The rating agency review process of these transactions
(e.g. concessions, parking), rights to stadium leases and        include analysis of the league, participating franchises,
other pledged property.                                          collective bargaining agreements, quality and payment
                                                                 ability of the underlying obligors (e.g. media companies),
ANALYSIS CONSIDERATIONS                                          historical and projected cash flows from all revenues
The sports league and the franchises must be able to             sources and expenses of individual franchises, and fran-
demonstrate its ability to draw attendance and interest to       chise ownership and management (history, economic
games and promote brand merchandise. If lack of interest         stake, etc). Assumptions are made on contractual and non-
in the sports league or franchise occurs, the risk of dimin-     contractual cashflow projections and analyzed under vari-
ished cash flow to support a transaction increases.              ous stress scenarios over the life of the transaction to deter-
Diversification of revenues across participating franchises      mine ultimate repayment under the transaction. The trans-
mitigates dependence on specific franchises generating a         action’s legal structure and cash control mechanics are
greater portion of the transaction’s revenues. Transactions      also assessed.
have been structured where franchises may choose to par-
ticipate in a league-wide facility and have access to a max-     DEALS DONE
imum debt facility in turn for pledging/selling revenues it      More than $2.0Bn of rated securitization transactions for
generates into the transaction. In these cases, revenues         sports leagues and franchises have been completed to date.
originated by a franchise are shared and distributed among       These include investment grade rated deals done by the
other franchises participating in the transaction.               National Football League (‘Baa1’ by Moody’s and ‘A’ by
   Media contracts provide the largest source of cashflow in     Fitch), Major League Baseball (‘A-‘ by Fitch) and National
these structured transactions. The contracts generally have      Basketball Association (‘BBB+’ by Fitch). Fitch rated the
multi-year terms, may or may not be cancelable and will          NFL and the NBA deals one notch below the league’s
outline payment terms. The contracts might be structured         implied credit rating, while the MLB deal had been rated
such that payments would not be required should the              one notch above its credit rating based on the bankruptcy-
league or franchise fail to perform, e.g. due to a strike or     remote issuer and true-sale structure. Rating agencies
work stoppage (collective bargaining agreement not               viewed the National Football League and the National
renewed) or other prevailing conditions which do not             Basketball Association favorably given the sharing of rev-
allow for media broadcast. Ongoing performance of the
franchise and league is critical for ultimate repayment for
such a transaction.
   The critical analysis in future flow sports-backed trans-
actions is to ensure that there is sufficient cashflow within
the transaction to cover interest, fees and principal due in
                                                                    Ongoing performance of the
any one period over the remaining life of the transaction.
Thus, transactions will include cash flow related amortiza-
                                                                    franchise and league is critical
tion triggers. In order to preserve transaction cashflow in
the securitization, annual expenses for the league and fran-
                                                                    for ultimate repayment for
chises are capped to remove the loss of cash flow for trans-
action repayment. In addition to ongoing cash coverage              such a transaction.
requirements, cash reserves are established at transaction
inception to cover transaction expenses incurred on a
monthly basis. Additional cash reserves may be required to                                                                                          6
U.S. Securitization                                                                                         August/September 2004

enues across all franchises and management of expenses.         to showcase our talents as a premier investment bank to
Franchises were required to prefund deferred compensa-          both first time issuers and middle market companies who
tion and player contracts, and the collective bargaining        require a bit of extra work to effectively access capital mar-
agreements contained salary caps, which were limited to         kets. While other firms often shun the additional work of
fixed percentages of league revenues. Major League              complex transactions, Harris Nesbitt looks forward to the
Baseball was not viewed as favorably as other sport leagues     challenge.
because they did not apply the same socialistic approach to
revenues as the NFL or the NBA. Smaller market franchis-
es were at a disadvantage as they were unable to garner
                                                                Term Securitization:
lucrative broadcasting and advertising contracts that larger
market franchises were able to obtain. The National
                                                                Structuring Complex
Hockey League was considered to be the weakest of the           Transactions
major U.S. sports leagues. A collective bargaining agree-
ment (negotiated in 1995) with no salary cap proved inad-       While Harris Nesbitt continues to work on transactions
equate to control a steep rise in players’ salaries. The col-   encompassing a wide variety of asset classes, last month
lective bargaining agreement expires in 2005 and it is          we closed a term securitization, which employed a unique
anticipated that a player strike will occur and the franchise   methodology. The securitization was collateralized by a
owners will seek salary caps at that time.                      pool of assets which included: performing and non-per-
                                                                forming residential mortgage, commercial mortgage loans,
OUTLOOK                                                         other non-real estate secured loans, real estate owned
Existing sports league and franchise securitizations com-       ("REO"), and unsecured commercial loans. While it is
pleted to date continue to perform within their transaction     common to see one of these asset classes securitized indi-
terms. Despite their ongoing performance, Harris Nesbitt        vidually, a single transaction including all of them is
views these transactions in their current form to have          unusual. In addition to the diverse asset mix, a majority of
matured with limited growth opportunities. With the flat-       the assets were non-performing loans or REO. While re-
tening of revenues seen across sectors within the sports        performing mortgage securitizations have found traction
industry, Harris Nesbitt anticipates minimal growth in          in the market, non-performing securitizations, mortgage or
sports-related, future flow securitizations over the near       otherwise, have not been as common. Both classes of the
term.                                                           senior-subordinate transaction were investment grade
  Ongoing performance of the franchise and league is crit-      rated by Moody's.
ical for ultimate repayment for such a transaction.                There is one structural characteristic of this particular
                                                                transaction that warrants mention--the concept of expect-
Harris Nesbitt Sole Lead on                                     ed cash flow. The concept of overcollateralization is well
                                                                entrenched in securitization. In order to create enhance-
Liquidating Trust                                               ment for the securitization and increase the likelihood that
                                                                the assets will generate sufficient receipts to service the
Harris Nesbitt (“Nesbitt”) led its first sole managed term      debt, it is standard practice to contribute more assets to the
ABS transaction this past July with a senior/subordinate        bankruptcy remote entity than you receive back in pro-
$64 million liquidating trust note for one of its middle mar-   ceeds. In a non-performing securitization, the difficulty
ket clients. The collateral for the transaction was a pool of   arises in quantifying this overcollateralization. In loan
secured and unsecured loans, mortgages and improved             transactions, the collateral is quantified as the aggregate
and unimproved commercial real estate properties.               unpaid principal balance ("UPB") of the loans. In non-per-
  The transaction was the second transaction of its type        forming transactions where the mortgage loans are in
done (the first was also done by the same client) and show-     default, foreclosure, or have been foreclosed upon (becom-
cased Nesbitt’s ability to offer competitive value. It also     ing a REO property), the UPB is of diminished conse-
added capital market access to its existing client base while   quence. In order to address this circumstance, the collat-
continuing to focus on highly structured asset classes.         eral ceases to be quantified by the owed amount and is
  Harris has a full pipeline of projects which will continue    evaluated according to the simple question, "How much                                                                                        7
U.S. Securitization                                                                                           August/September 2004

money do we expect to receive relative to this asset and         receipts may be payments from a bankruptcy, settlements
when?"                                                           from a judgment, or proceeds from the liquidation of the
   This is not nearly so radical a departure from traditional    collateral; nonetheless, there is the expectation of cash
collateral analysis as it may at first appear. For example, an   flow. For example, if the asset is a $200,000 mortgage on
8%, 60 month, $20,000 auto loan is expected to generate          residential property and the obligor is not adhering to the
about $24,360 by virtue of 60 monthly payments of approx-        terms of the note, the owner of the mortgage has the ability
imately $406 each. By a similar token, an operating lease        to foreclose on the property and liquidate or sell it. If the
may dictate that payments of $250 per month are due for          market value of the property is approximately $150,000
the next 28 months thereby generating expected cash flow         (net of foreclosure and liquidation expenses), the lender
of $7,000. Granted these assets would be combined with           has expected cash flow of $150,000. Ultimately, the ques-
other homogenous assets and a securitization would be            tion becomes, "Is a legal obligation any more indicative of
structured against the entire pool, but, most likely, one        projected proceeds than a realistic recovery value?"
would not be able to borrow $24,360 against the auto loan,          In one clear sense it is, leading us to the second question:
or even $20,000 for that matter. Likewise, the lease stream
would be discounted and some portion of that discounted          IS THERE A METHOD TO PROJECT THE TIMING OF
value could be borrowed.                                         THESE CASH FLOWS?
   While the single loan and lease example are relatively        Loans and leases have schedules. To abide by the contract,
simple, there are important consistencies between them           the obligor is bound to submit a predetermined amount of
and the non-performing securitization. These consisten-          cash according to a predetermined schedule. Due to this
cies center around the ability to adequately address the fol-    assumption, the projection of cash flow is a straightforward
lowing three questions:                                          analysis. Granted, most loans and leases are prepayable.
                                                                 On a pool basis, assumptions made regarding prepayment
    1. Is there a method, by which to project how much           and, in a pass-through, the structure is not hurt by receipt
       cash will be generated by the pool of assets?             of principal ahead of expectation. Analysis of cash flow
    2. Is there a method to project the timing of these          timing is more concerned with addressing the latest time at
       cash flows?                                               which gross cash may be received as the corresponding
    3. Is there empirical data that can support these pro-       debt accrues interest on the uncollected portion in the
       jections to a degree of certainty that would warrant      interim.
       an investment grade rating?                                  In the case of non-performing assets, contractual repay-
While there are certainly a host of other considerations that    ment schedules have little value. Some assets may have
must be considered to determine the suitability of an asset      already been foreclosed upon or repossessed inferring that
for securitization, the discussion here will focus on these      no schedule exists at all. In these circumstances the pro-
three.                                                           jection of cash flow becomes less objective and more sub-
                                                                 jective, often on an asset-by-asset basis.
IS THERE A METHOD BY WHICH TO PROJECT HOW                           To expand on the example of the $200,000 mortgage on
MUCH CASH WILL BE GENERATED BY THE                               the $150,000 valued house, the servicer must consider a
ASSET(S)?                                                        number of issues as the mortgage loan migrates from per-
In the case of both the auto loan and the lease, there is a      forming to non-performing. What is the probability that
balance that is due. The UPB of the loan is a legal obliga-      the obligor will be able to refinance the loan? What is the
tion of the debtor and there are ramifications if he or she      probability that the obligor will be able to perform under a
does not abide by that obligation. While not having a UPB,       forbearance agreement if a portion of the past due amount
a lease has similar obligations attached to it. In both cases,   is deferred? If the property has to be foreclosed upon, what
there is a scheduled cash flow stream, the aggregate of          is the procedure for doing so in that particular state? If
which is the expected cash flow from the asset.                  foreclosure has begun, where is it in the process? What is
   Non-performing assets (especially those which are col-        the strength of the housing market in the area in which the
lateralized) also have an expected cash flow. It may or may      property is located?
not be the legal balance, as with the loan or lease example,        All of these questions are directed towards answering
but certainly there is the expectation of receipts. These        the ultimate question-when will this asset generate cash                                                                                          8
U.S. Securitization                                                                                          August/September 2004

flow? Since a refinance or forbearance would result in          within a rating agency should rate the transactions. Due to
receipt of either the entire balance due or additional inter-   this landscape, the importance of the servicer's ability to
est cash flow to the lender, these outcomes would be the        substantiate its projections can not be overstated. In order
most desirable. However, they are perhaps not as likely         to get the market comfortable with subjective projections
assuming the necessity of a foreclosure and disposition.        relative to expected receipts and the timing of those
Based on the experience of the servicer, a realistic timing     receipts, the servicer must be in a position to demonstrate
assumption may still be made. For example, if the foreclo-      that its projections are based on years of history and poten-
sure process takes eight months and the marketing and           tially thousands of similar assets. While it may be arduous
sale process in the area takes six months, the servicer can     to gather and synthesize this data, servicing non-perform-
realistically expect cash flow in about fourteen months.        ing assets, or any esoteric asset for that matter, is highly
An understandable reaction to this may be asking the ques-      specialized. While there are companies that are able to do
tion, "Is this really anything more than a guess?" This leads   very well purchasing non-performing mortgages, charged-
us to the third question:                                       off credit card receivables, and tax liens, to name just a few,
                                                                for many companies it would be a recipe for disaster. By
IS THERE EMPIRICAL DATA THAT CAN SUPPORT                        the time a company specializing in these sorts of assets is
THESE PROJECTIONS TO A DEGREE OF CERTAINTY                      ready to securitize, they have usually taken the time to
THAT WOULD WARRANT AN INVESTMENT GRADE                          gather the necessary data, out of a sense of self- preserva-
RATING?                                                         tion, if nothing else.
As it may become clear, the loan and lease examples are            The securitization market is constantly evolving. While
easy. Since 1985, including prime and sub-prime, over           the bulk of term securitizations are, and probably always
1,000 auto loan securitizations have been completed with        will be, collateralized by commodity assets such as credit
an aggregate par amount of over $600 billion. Between           cards, autos and mortgages, new asset classes are constant-
equipment loans and leases, there have been over 300            ly emerging. Securitizations have been collateralized by:
transactions raising almost $96 billion. In short, there are    music and movie royalties, franchise fees, charged-off
mountains of asset class data in addition to whatever port-     credit card receivables, and even non-performing commer-
folio specific data the servicer may have. Based on a few       cial mortgage loans.
characteristics, the rating agencies are able to predict with      Harris Nesbitt is always up for the challenge of structur-
relative certainty the general performance characteristics      ing complex transactions and are always willing to take a
of these commodity pools.                                       different perspective on a client's needs and constraints.
   Securitization is based on history and the premise that      Let me put it this way, when posed with the question, "
asset performance in the past guides us to how they may         Which would you rather have, a five dollar bill or some
perform in the future. There are no rating agency publica-      empty soda cans?" Some people in the securitization busi-
tions detailing the performance trends of pools of these        ness would respond quickly, "The five dollar bill." My
assets and often there are even questions as to what group      response would be, "How many soda cans?"

   FOMC 2004 MEETING DATES                                         CONTRIBUTORS:

   21-Sep                                                          Susan Miceli                  Anthony Harris
   10-Nov                                                          Lou Galassini                 William Barbino
   14-Dec                                                          Karen Louie                   Jason Michelletto
                                                                   Kristi Riffe                  Barbara Boone                                                                                         9
U.S. Securitization                                                                                                          August/September 2004

                                                 U.S. Asset-Backed Commercial Paper Market
                                                         vs. Harris Nesbitt (U.S. only)
                                                                                                                     US Asset-Backed CP
      US CP Conduits
      $7,000                                                                                                                       $900


      $4,000                                                                                                                       $500

      $3,000                                                                                                                       $400


           $0                                                                                                                      $0
                   1995       1996        1997        1998        1999      2000   2001        2002        2003       Aug-04
                          Nesbitt's US CP Conduits CP Outstandings ($MMs)          US Asset-backed CP Outstandings ($Blns)

   Upcoming Industry Conferences
   * Harris Nesbitt U.S. Securitization attending

   October 4-5, 2004                               October 12-15, 2004                        February 7-10, 2005
   Introduction to Securitization                  ABS East*                                  ABS West*
   Transactions*                                   Boca Raton Resort, Boca Raton, FL          J.W. Marriott Desert Ridge
   Allerton Crown Plaza, Chicago                   Speakers:                                  Phoenix, AZ
   Speaker: Pete Walsh                             Dave Kucera
                                                   Pete Walsh                                 February 7-10, 2005
                                                   Kevin Gibbons                              SRI Asset Based Lending and
                                                                                              Commercial Finance
                                                   January 23-26, 2005                        Venetian, Las Vegas
                                                   ASF 2005 Conference*
                                                   Fairmont Scottsdale Princess
                                                   Scottsdale AZ                                                                                                       10
U.S. Securitization                                                                                                     August/September 2004

Transaction List
June 2004 was apparently a good month to issue asset-securities. Based on the numbers, it appears to have been the best
month ever to do so. Total issuance for June was just north of $76 billion making it the most active issuance month ever
by a margin of almost 10%. Issuance for July was brisk as well, seeing approximately $34 (a record for July) billion come
to market. While that is less than half of June issuance, it is reflective of the market slow-down in the summer (and fol-
lowing quarter end). In fact, only in 2001 has July issuance been higher than June issuance.

Date          Transaction                                                   Amount (MMs)   Assets                         Surety     Type
6/1/2004      CWABS Inc., 2004-3N                                           278            Net interest margin                       144A
6/1/2004      CWABS Inc., 2004-2N                                           193            Net interest margin                       144A
6/1/2004      Argent Securities Inc., 2004-W9/B                             181            Subprime home loans                       Public
6/1/2004      Argent Securities Inc., 2004-W9/A                             319            Subprime home loans            FSA        Public
6/2/2004      WRAPS (Airplanes) Trust, 2004-1                               126            Aircraft-lease receivables                144A
6/2/2004      Securitized Asset Backed NIM Trust, 2004-NC1                  72             Net interest margin                       144A
6/2/2004      Morgan Stanley ABS Capital I Trust, 2004-SD2                  226            Home-equity loans                         Public
6/2/2004      Long Beach Mortgage Loan Trust, 2004-3                        1,999          Subprime home loans                       Public
6/2/2004      Asset Backed Funding Corporation NIM Trust, 2004-OPT2         77             Net interest margin                       144A
6/2/2004      AmeriCredit Automobile Receivables Trust, 2004-1              575            Auto loans (sub-prime)                    Public
6/3/2004      SLM Student Loan Trust, 2004-5/A                              1,739          Student loans                             Public
6/3/2004      Security National Mortgage Loan Trust, 2004-1                 127            Home-equity loans                         144A
6/3/2004      GE Business Loan Trust, 2004-1                                628            Small-business loans                      144A
6/3/2004      Centex Home Equity Loan Trust, 2004-C                         900            Home-equity loans                         Public
6/3/2004      Capital One Multi-asset Execution Trust Class A, 2004-5       200            Credit cards                              Public
6/3/2004      Capital One Multi-asset Execution Trust Class A, 2004-4       400            Credit cards                              Public
6/3/2004      Asset Backed Securities Corp. Home Equity Loan Trust, 2004-HE4 296           Home-equity loans                         Public
6/4/2004      Citibank Credit Card Issuance Trust, 2004-B1/B                50             Credit cards                              Public
6/4/2004      Ameriquest Mortgage Securities Inc., 2004-R6                  900            Subprime home loans            XLCA       Public
6/7/2004      National Collegiate Student Loan Trust , 2004-1               790            Student loans                             Public
6/7/2004      Home Equity Mortgage Loan Asset-Backed Trust, SPMD 2004-A     425            Subprime home loans                       Public
6/8/2004      Mt. Spokane Trust, 2004-A                                     61             Small-business loans                      144A
6/8/2004      Arbor I Ltd., 2004-5                                          18             Catastrophic risk                         144A
6/9/2004      Novastar Mortgage Funding Trust, 2004-2                       1,375          Home-equity loans              FSA        Public
6/9/2004      Fifth Third Home Auto Trust, 2004-A                           739            Auto loans (sub-prime)                    Public
6/9/2004      Drive Auto Receivables Trust, 2004-1                          438            Auto loans (sub-prime)         MBIA       144A
6/10/2004     First Franklin NIM Trust, 2003-FF5                            56             Net interest margin            144A
6/10/2004     C-Bass Mortgage Loan Asset-Backed Certificates, 2004-RP1      127            Subprime home loans                       144A
6/10/2004     CapitalSource Commercial Loan Trust, 2004-1                   875            Small-business loans                      144A
6/10/2004     American Express Credit Account Secured Note Trust, 2004-C    1,420          Credit cards                              144A
6/11/2004     Hyundai Capital Auto Funding Ltd., 2                          300            Auto loans (prime)                        144A
6/11/2004     ABSC NIMs Trust, 2004-HE3                                     48             Net interest margin                       144A
6/14/2004     Sharps SP I LLC Net Interest Margin Trust, 2004-OP1N          111            Net interest margin                       144A
6/14/2004     Merrill Lynch Mortgage Investors Inc., 2004-WMC4              1,306          Home-equity loans                         Public
6/15/2004     Wachovia Auto Owner Trust, 2004-A                             2,000          Auto loans (prime)                        Public
6/15/2004     MBNA Credit Card Master Note Trust MBNAseries Class C, 2004-2 275            Credit cards                              Public
6/15/2004     GE Capital Credit Card Master Note Trust, 2004-1              953            Credit cards                              Public
6/16/2004     IndyMac Loan Trust, 2004-L1                                   193            Subprime home loans            FGIC       144A                                                                                                     11
U.S. Securitization                                                                                             August/September 2004

6/16/2004     Honda Auto Receivables Owner Trust, 2004-2                  1,812   Auto loans (prime)                         Public
6/16/2004     GI Capital Ltd., 04                                         125     Catastrophic risk                          144A
6/16/2004     CIT Equipment Collateral Owner Trust, 2004-EF1              453     Equipment leases                           Public
6/17/2004     Wachovia Asset Securitization Inc., 2004-HE1                1,000   Home-equity lines of credit     MBIA       Public
6/17/2004     Mellon Bank Premium Finance Loan Master Trust, 2004-1       500     Insurance-premium loans                    Public
6/17/2004     DB Cars Trust, 2004-2                                       878     Auto loans (prime)                         144A
6/17/2004     Bank One Issuance Trust ONEseries Class A, 2004-4           1,250   Credit cards                               Public
6/18/2004     SASCO NIM, 2004-S2                                          29      Net interest margin                        144A
6/18/2004     SAIL Net Interest Margin Notes, 2004-5                      60      Net interest margin                        144A
6/18/2004     Nissan Auto Receivables Owner Trust, 2004-B                 1,475   Auto loans (prime)                         Public
6/18/2004     Garanti Diversified Payment Rights Finance Co., 2004-C      150     Remittances (by immigrants)     Ambac      144A
6/18/2004     Garanti Diversified Payment Rights Finance Co., 2004-B      175     Remittances (by immigrants)     MBIA       144A
6/18/2004     Fremont Asset Holdings Corp., 2004-1                        52      Net interest margin                        144A
6/18/2004     Continental Airlines Pass Through Trust, 2004-ERJ1          174     Aircraft-lease receivables                 Public
6/21/2004     Washington Mutual Mortgage Securities Corp., 2004-CB2       327     Subprime home loans                        Public
6/21/2004     AQ Finance NIM Trust, 2004-RN5                              60      Net interest margin                        144A
6/22/2004     Sequoia HELOC Trust, 2004-1                                 317     Home-equity lines of credit     Ambac      Public
6/22/2004     RAAC Trust, 2004-SP1                                        234     Home-equity loans                          Public
6/22/2004     Merrill Lynch Mortgage Investors Inc., 2004-BC2             575     Home-equity loans                          Public
6/22/2004     Franklin Auto Trust, 2004-1                                 250     Auto loans (sub-prime)          MBIA       Public
6/22/2004     First Horizon ABS Trust, 2004-HE2                           313     Home-equity lines of credit     MBIA       Public
6/22/2004     AQ Finance NIM Trust, 2004-RN4                              66      Net interest margin                        144A
6/23/2004     SLM Student Loan Trust, 2004-6                              3,031   Student loans                              Public
6/23/2004     Residential Funding Mortgage Securities II Inc., 2004-HI2   275     High-LTV loans                  FGIC       Public
6/23/2004     RASC Trust, 2004-KS6                                        1,000   Home-equity loans                          Public
6/23/2004     RAMP Trust, 2004-RZ2                                        475     High-LTV loans                  FGIC       Public
6/23/2004     RAMP Trust, 2004-RS6                                        1,000   Subprime home loans                        Public
6/23/2004     Morgan Stanley ABS Capital I Trust, 2004-NC5/B              386     Subprime home loans                        144A
6/23/2004     Morgan Stanley ABS Capital I Trust, 2004-NC5                331     Subprime home loans                        Public
6/23/2004     First Franklin Mortgage Loan Trust, 2004-FF4/A              311     Home-equity loans                          144A
6/23/2004     Fieldstone Mortgage Investment Corp., 2004-3                987     Subprime home loans                        Public
6/23/2004     Equifirst Asset Holdings Corp., 2004-1                      27      Net interest margin                        144A
6/23/2004     CWABS Inc., 2004-ECC1                                       530     Subprime home loans                        Public
6/24/2004     World Omni Auto Receivables Trust, 2004-A                   840     Auto loans (sub-prime)                     Public
6/24/2004     Terwin Mortgage Trust, 2004-7HE                             326     Subprime home loans                        Public
6/24/2004     Residential Funding Mortgage Securities II Inc., 2004-HS2   604     Home-equity lines of credit     MBIA       Public
6/24/2004     Morgan Stanley ABS Capital I Trust, 2004-HE4                812     Home-equity loans                          Public
6/24/2004     Long Beach Acceptance Auto Receivables Trust, 2004-B        250     Auto loans (sub-prime)          FSA        Public
6/24/2004     GSAA Home Equity Trust, 2004-4                              321     Home-equity loans                          Public
6/24/2004     CWABS Inc., 2004-6                                          4,467   Subprime home loans                        Public
6/24/2004     Chase Funding Trust, 2004-2                                 750     Subprime home loans                        Public
6/24/2004     Aegis Asset Backed Securities Trust, 2004-3                 836     Home-equity loans                          Public
6/25/2004     Washington Mutual Mortgage Securities Corp., 2004-RA2       191     Subprime home loans                        Public
6/25/2004     Residential Accredit Loans Inc., 2004-QA2                   365     Subprime home loans                        Public
6/25/2004     Renaissance Home Equity Loan Trust, 2004-2/B                273     Home-equity loans                          Public
6/25/2004     Renaissance Home Equity Loan Trust, 2004-2/A                232     Home-equity loans                          Public
6/25/2004     RAMP Trust, 2004-SL2                                        499     Subprime home loans                        Public
6/25/2004     New Century Home Equity Loan Trust, 2004-2                  1,937   Home-equity loans                          Public
6/25/2004     Impac CMB Trust, 2004-6/B                                   173     Home-equity loans Ambac                    Public                                                                                          12
U.S. Securitization                                                                                                  August/September 2004

6/25/2004     Impac CMB Trust, 2004-6/A                                        2,028   Home-equity loans                          Public
6/25/2004     Home Equity Mortgage Trust, 2004-3                               400     Home-equity loans                          Public
6/25/2004     GSAMP Trust, 2004-SEA2                                           621     Subprime home loans                        Public
6/25/2004     GSAA Home Equity Trust, 2004-5                                   304     Home-equity loans                          Public
6/25/2004     Greenpoint Home Equity Loan Trust, 2004-3                        234     Home-equity lines of credit     Ambac      Public
6/25/2004     First Franklin Mortgage Loan Trust, 2004-FFH2                    1,152   Subprime home loans                        Public
6/25/2004     Bear Stearns Asset Backed Securities Inc., 2004-HE5              1,055   Home-equity loans                          Public
6/25/2004     Bank One Issuance Trust ONEseries Class C, 2004-2                165     Credit cards                               Public
6/25/2004     ABFC Asset-Backed Certificates, 2004-OPT4                        787     Home-equity loans                          Public
6/28/2004     SASCO Mortgage Loan Trust, 2004-GEL2                             142     Home-equity loans                          Public
6/28/2004     GMACM Home Equity Loan Trust, 2004-HE3                           977     Home-equity loans               FSA        Public
6/28/2004     Equifirst Mortgage Loan Trust, 2004-2                            622     Subprime home loans                        Public
6/28/2004     CWABS Master Trust, 2004-G                                       631     Home-equity lines of credit     FGIC       Public
6/28/2004     Citigroup Mortgage Loan Trust, 2004-NCM1                         482     Subprime home loans                        Public
6/29/2004     Structured Asset Investment Loan Trust, 2004-6                   2,309   Home-equity loans                          Public
6/29/2004     Kingfisher Trust, 2004-1G                                        1,000   Non-U.S. residential loans                 Public
6/29/2004     Home Equity Asset Trust, 2004-4                                  1,100   Home-equity loans                          Public
6/29/2004     CWABS Master Trust, 2004-A                                       1,015   Home-equity lines of credit     FGIC       Public
6/29/2004     CWABS Master Trust, 2004-E                                       1,250   Home-equity lines of credit     FGIC       Public
6/29/2004     CWABS Master Trust, 2004-C                                       1,055   Home-equity lines of credit     FGIC       Public
6/29/2004     Capital One Multi-asset Execution Trust Class A, 2004-6          750     Credit cards                               Public
6/30/2004     IndyMac NIM Trust, SPMD 2004-A                                   24      Net interest margin                        144A
6/30/2004     GSAMP Trust, 2004-HE1N                                           34      Net interest margin                        144A
6/30/2004     CWABS Master Trust, 2004-F                                       1,218   Home-equity lines of credit                Public
6/30/2004     CWABS Master Trust, 2004-D                                       1,249   Home-equity lines of credit     Ambac      Public
6/30/2004     Asset Backed Securities Corp. Home Equity Loan Trust, 2004-HE5 966       Home-equity loans                          Public
6/30/2004     Ameriquest Mortgage Securities Inc., 2004-R7/B                   812     Subprime home loans                        Public
6/30/2004     Ameriquest Mortgage Securities Inc., 2004-R7/A                   1,588   Subprime home loans             FSA        Public
7/1/2004      Sharps SP I LLC Net Interest Margin Trust, 2004-IN1N             22      Net interest margin                        144A
7/1/2004      C-Bass Mortgage Loan Asset-Backed Certificates, 2004-CB4         384     Home-equity loans                          Public
7/1/2004      BXG Receivables Note Trust, 2004-A                               157     Timeshare loans                            144A
7/8/2004      PHEAA Student Loan Trust I, 2004-1                               400     Student loans                              Public
7/8/2004      GSAMP Trust, 2004-AR1/B                                          558     Subprime home loans                        Public
7/8/2004      GSAMP Trust, 2004-AR1/A                                          639     Subprime home loans             FGIC       Public
7/8/2004      Capital One Multi-asset Execution Trust Class B, 2004-5          200     Credit cards                               Public
7/8/2004      Capital One Multi-asset Execution Trust Class B, 2004-4          150     Credit cards                               Public
7/12/2004     Mid-State Capital Corporation Trust, 2004-1                      295     Manufactured-housing loans                 Public
7/13/2004     USAA Auto Owner Trust, 2004-2                                    1,437   Auto loans (prime)                         Public
7/13/2004     Security National Asset Securitization Series Trust II, 2004-A   64      Non-performing mortgages                   144A
7/13/2004     Securitized Asset Backed Receivables Trust, 2004-DO1             106     Subprime home loans                        Public
7/13/2004     Citibank Credit Card Issuance Trust, 2004-C1                     225     Credit cards                               Public
7/13/2004     Capital One Prime Auto Receivables Trust, 2004-2                 1,200   Auto loans (prime)                         Public
7/15/2004     Chesapeake Funding LLC, 2003-2                                   500     Auto Leases                                Public
7/16/2004     MBNA Credit Card Master Note Trust MBNAseries Class A, 2004-7 900        Credit cards                               Public
7/19/2004     Permanent Financing PLC, No. 5/A                                 3,300   Non-U.S. residential loans                 Public
7/19/2004     Household Home Equity Loan Trust, 2004-1                         986     Home-equity loans                          Public
7/19/2004     Drivetime Auto Owner Trust, 2004-B                               209     Auto loans (sub-prime)                     144A
7/20/2004     SLM Student Loan Trust, 2004-7                                   1,510   Student loans                              Public
7/20/2004     Nelnet Student Loan Trust, 2004-3                                1,355   Student loans                              Public                                                                                               13
U.S. Securitization                                                                                         August/September 2004

7/20/2004     Merrill Lynch Mortgage Investors Trust MLCC, 2004-HE1        306     Residential mortgages                 Public
7/20/2004     Equity One Mortgage Pass-Through Trust, 2004-3               644     Home-equity loans                     Public
7/21/2004     Household Automotive Trust, 2004-1                           750     Auto loans (sub-prime)                Public
7/21/2004     DaimlerChrysler Auto Trust, 2004-B                           1,500   Auto loans (prime)                    Public
7/22/2004     Morgan Stanley ABS Capital I Trust, 2004-HE5                 525     Home-equity loans                     Public
7/22/2004     Ford Credit Floorplan Master Owner Trust A, 2004-1           3,000   Floorplan loans                       Public
7/23/2004     Saxon Asset Securities Trust, 2004-2                         1,200   Home-equity loans                     Public
7/23/2004     Morgan Stanley ABS Capital I Trust, 2004-NC6                 716     Subprime home loans                   Public
7/23/2004     Morgan Stanley ABS Capital I Trust, 2004-WMC1                406     Home-equity loans                     Public
7/23/2004     First Franklin Mortgage Loan Trust, 2004-FF5                 508     Subprime home loans                   Public
7/23/2004     CWABS Inc., 2004-BC3                                         450     Subprime home loans                   Public
7/26/2004     Washington Mutual Mortgage Securities Corp., 2004-RA3        344     Subprime home loans                   Public
7/26/2004     RASC Trust, 2004-KS7                                         850     Home-equity loans          FGIC       Public
7/26/2004     RAMP Trust, 2004-RS7/B                                       6       Subprime home loans                   Public
7/26/2004     RAMP Trust, 2004-RS7/A                                       1,184   Subprime home loans        FGIC       Public
7/26/2004     Merrill Lynch Mortgage Investors Trust MLCC, 2004-HB1        500     Subprime home loans                   Public
7/26/2004     Mastr Asset Backed Securities Trust, 2004-FRE1               510     Home-equity loans                     Public
7/26/2004     GSAA Home Equity Trust, 2004-6                               217     Home-equity loans                     Public
7/26/2004     CHEC Loan Trust, 2004-1                                      309     Home-equity loans                     Public
7/27/2004     MBNA Credit Card Master Note Trust MBNAseries Class B, 2004-2 150    Credit cards                          Public
7/27/2004     Impac CMB Trust, 2004-7/B                                    772     Home-equity loans          Ambac      Public
7/27/2004     Impac CMB Trust, 2004-7/A                                    1,428   Home-equity loans                     Public
7/27/2004     First Franklin Mortgage Loan Trust, 2004-FFB                 418     Home-equity loans                     Public
7/27/2004     Education Loans Inc., 2004-C/D                               432     Student loans                         Public
7/27/2004     CWABS Inc., 2004-ECC2                                        550     Subprime home loans                   Public
7/27/2004     Bear Stearns Asset Backed Securities Trust, 2004-FR1         465     Home-equity loans                     Public
7/27/2004     Bear Stearns Asset Backed Securities Inc., 2004-HE6          921     Home-equity loans                     Public
7/27/2004     ABFC Asset-Backed Certificates, 2004-FF1                     723     Home-equity loans                     Public

Source: Asset Backed Alert ABS Database                                                                                      14
U.S. Securitization                                                                                                                                                                                 August/September 2004

                                                                  N O R T H A M E R I C A N E C O N OM I C C A L E N D A R

                                                                                             SEPTEMBER 2004
                       Dr. Sherry Cooper
                       Executive Vice President & Chief Economist                                                                                                   1-800-613-0205

                                MONDAY                            TUESDAY                           WEDNESDAY                           THURSDAY                            FRIDAY
                                                                                                       CANADA                                                              CANADA
                        POLICY MEETINGS                                                       Real return bond auction                                            8:15 am: Foreign Reserves
                                                                                                                                                                  - Aug.
                         Bank of Canada
                          September 8                                                            UNITED STATES                     UNITED STATES                      UNITED STATES
                          October 19                                                          10:00 am: ISM Index - Aug.        8:30 am: Productivity - Q2 R      8:30 am: Employment Report
                          December 7                                                          10:00 am: Construction            8:30 am: Initial Claims           - Aug.
                                                                                              Spending - Jul.                   - Aug. 28 TH week                 10:00 am: Non-mfg ISM Index
                                                                                              Auto Sales - Aug.                 10:00 am: Factory Orders          - Aug.
                          September 21
                                                                                                                                - Jul.
                          November 10
                                                                                                   Republican National          5- & 10-year note auction
                          December 14                                                               Convention in NYC           announcement
                                                                                                     (Aug. 30-Sep. 2)

                                                                                                                           1                                 2                                  3
                                CANADA                            CANADA                               CANADA                            CANADA                            CANADA
                                                         8:30 am: Building Permits                                              8:15 am: Housing Starts - Aug.    7:00 am: Employment Report
                                                         - Jul.                                                                 8:30 am: Capacity Utilization     - Aug.
                                                         10:00 am: Ivey Purchasing                                              - Q2                              8:30 am: Merchandise Trade
                                Labour Day               Managersí Index - Aug.                 BoC Policy Announcement                                           Balance - Jul.
                                                                                                                                8:30 am: New Housing Price
                                                                                                                                Index - Jul.
                                                                                                                                2-year bond auction
                          UNITED STATES                      UNITED STATES                       UNITED STATES                      UNITED STATES                    UNITED STATES
                                                         10:00 am: Challenger Layoff          8:55 am: Redbook                  8:30 am: Trade Price Indices      8:30 am: Producer Price Index
                                                         Report - Aug.                        - Sep. 4TH week                   - Aug.                            - Aug.
                                                         3 & 6-month T-bill auction           3:00 pm: Consumer Credit          8:30 am: Initial Claims           8:30 am: Goods & Services
                                 Labor Day                                                    - Jul.                            - Sep. 4TH week                   Trade Balance - Jul.
                                                                                              5-year note auction               10:00 am: Wholesale Trade
                                                                                                                                - Jul.
                                                                                                        Beige Book              Chain-Store Sales - Aug.
                                                                                                                                10-year note auction
                                                    6                                   7                                  8                                 9                                10
                                CANADA                            CANADA                               CANADA                            CANADA                            CANADA
                       8:30 am: Labour Productivity      8:30 am: New Motor Vehicle           8:30 am: Manufacturing            8:30 am: International            7:00 am: Consumer Price
                       - Q2                              Sales - Jul.                         Shipments & Orders - Jul.         Securities Transactions - Jul.    Index - Aug.
                                                         Manpower Survey - Q4                 8:30 am: Existing Home Sales                                        8:30 am: Leading Indicators
                                                                                              - Aug.                                                              - Aug.
                                                                                              2-year bond auction
                          UNITED STATES                      UNITED STATES                       UNITED STATES                      UNITED STATES                     UNITED STATES
                       2:00 pm: Treasury Budget          8:30 am: Current Account - Q2        8:30 am: Empire State             8:30 am: Consumer Price           9:45 am: University of
                       - Aug.                            8:30 am: Retail Sales - Aug.         Manufacturing Survey - Sep.       Index - Aug.                      Michigan Consumer Sentiment
                       3 & 6-month T-bill auction                                             8:30 am: Business Inventories     8:30 am: Initial Claims           Index - Sep. P
                                                         8:55 am: Redbook
                                                         - Sep. 11TH week                     - Jul.                            - Sep. 11TH week
                                                         Manpower Survey - Q4                 9:15 am: Industrial Production    9:00 am: Foreign Purchases
                                                                                              - Aug.                            of U.S. Securities - Jul.
                                                                                              9:15 am: Capacity Utilization     12:00 pm: Philadelphia Fed
                                                                                              - Aug.                            Index - Sep.
                                                    13                                  14                                 15   Flow of Funds - Q2
                                                                                                                                                             16                               17
                                CANADA                            CANADA
                       8:30 am: Wholesale Trade          8:30 am: Retail Sales - Jul.
                       - Jul.
                          UNITED STATES                      UNITED STATES                                                          UNITED STATES                     UNITED STATES
                       1:00 pm: NAHB Housing Index       8:30 am: Housing Starts                                                8:30 am: Initial Claims           8:30 am: Durable Goods
                       - Sep.                            - Aug.                                                                 - Sep. 18TH week                  Orders - Aug.
                       3 & 6-month T-bill auction        8:30 am: Building Permits                                              10:00 am: Leading Indicators      10:00 am: Existing Home
                                                         - Aug.                                                                 - Aug.                            Sales - Aug.
                                                         8:55 am: Redbook                                                       FOMC Minutes from
                                                         - Sep. 18TH week                                                       August Meeting

                                                                 FOMC Meeting

                                                    20                                  21                                 22                                23                               24
                                                                  CANADA                               CANADA                            CANADA
                                                         8:30 am: Average Weekly              8:30 am: Industrial Product       8:30 am: Real GDP at Basic
                                                         Earnings - Jul.                      Price Index - Aug.                Prices - Jul.
                                                                                              8:30 am: Raw Materials Price          UNITED STATES
                                                                                              Index - Aug.
                                                                                                                                8:30 am: Personal Income &
                                                                                                                                Consumption - Aug.
                          UNITED STATES                      UNITED STATES                        UNITED STATES                 8:30 am: Initial Claims               UNITED STATES
                       10:00 am: New Home Sales          8:55 am: Redbook                     8:30 am: Real GDP - Q2 F          - Sep. 25TH week                  9:45 am: University of
                       - Aug.                            - Sep. 25TH week                     8:30 am: Corporate Profits        10:00 am: Help-Wanted Index       Michigan Consumer Sentiment
                       3 & 6-month T-bill auction        10:00 am: Conference Board           - Q2 R                            - Aug.                            Index - Sep. F
                       2-year note auction               Consumer Confidence Index            2-year note auction               10:00 am: Chicago Purchasing      10:00 am: Construction
                       announcement                      - Sep.                                                                 Managersí Index - Sep.            Spending - Aug.
                                                                                                                                                                  10:00 am: ISM Index - Sep.
                                                                                                                                    Presidential Debate in        Auto Sales - Sep.
                                                                                                                                    Coral Gables, Florida

                                                    27                                  28                                 29                                30                        Oct. 1
                       . . . Over                                                                                                                                                                              15
U.S. Securitization                                                                                                                                                                       August/September 2004

      United States Economic Outlook
      BMO Nesbitt Burns Economics
         August 20, 2004
                                                                             2003                                    2004                                    2005      2002      2003      2004      2005
                                                 Q1        Q2        Q3        Q4        Q1        Q2        Q3        Q4         Q1        Q2        Q3       Q4

      PRODUCTION                         (quarter/quarter % change : a.r.)
      Real GDP (chain-weighted)                1.9      4.1     7.4       4.2           4.5       3.0       3.7        3.8       3.7       3.5       3.2       3.1       1.9       3.0      4.4        3.5
       Final Sales                             2.4      5.2     6.8       3.7           3.3       2.8       3.2        3.8       4.2       3.7       3.4       3.3       1.4       3.1      3.8        3.6
       Final Domestic Demand                   2.2      5.4     5.9       4.2           3.9       2.7       1.6        3.3       5.3       3.3       3.0       2.9       2.1       3.4      3.7        3.5
       Consumer Spending                       2.7      3.9     5.0       3.6           4.1       1.0       2.1        2.1       2.7       2.7       2.8       2.8       3.1       3.3      3.2        2.4
         durables                             -0.1     20.7    16.5       3.9           2.2      -2.5       4.0        3.0       2.0       3.0       3.0       2.5       6.5       7.4      4.6        2.5
         nondurables                           5.0      1.6     6.9       5.1           6.7      -0.1       1.0        1.8       2.6       2.3       2.4       2.5       2.6       3.7      3.8        2.0
         services                              2.1      1.8     1.9       2.8           3.3       2.3       2.4        2.0       3.0       2.8       2.9       3.0       2.6       2.2      2.6        2.6
       Government Spending                     0.2      7.2     0.1       1.6           2.5       2.3       2.2        1.2       2.1       2.4       2.1       1.6       4.4       2.8      2.2        2.0
       Business Investment                    -0.2     11.8    15.7     11.0            4.2       8.8      11.9       14.6      10.7       8.8       7.1       6.3      -8.9       3.3      9.8       10.3
         non-residential construction        -13.0     14.6    -1.3       7.8          -7.5       5.1       6.0        5.0       5.0       3.5       3.0       3.0     -17.8      -5.6      2.1        4.5
         equipment & software                  4.5     11.0    21.6     12.0            8.1      10.0      11.0       17.0      12.0      10.0       8.0       7.0      -5.5       6.4     11.9       11.4
       Residential Construction                7.6      9.0    22.5       9.6           5.0      15.4       0.0        3.0       3.0       2.0       1.0       2.0       4.8       8.7      9.2        2.8
       Exports                                -1.5     -1.6    11.3     17.4            7.3      13.2      11.1        9.5       9.6       9.3       8.6       7.9      -2.3       1.9     10.8        9.7
       Imports                                -1.9      2.5     2.9     17.1           10.6       9.3       4.9        4.4       5.3       4.8       4.8       4.4       3.4       4.4      8.9        5.1
                                         (billions of 2000 dollars : a.r.)
       Inventory Change                         9.6    -17.6     -3.5       8.6         40.0      47.5      54.0      57.0      52.0      47.0      42.0      38.0      11.9      -0.8      49.6      44.8
       Net Exports                           -511.7 -525.2 -508.7 -528.3              -550.1    -552.7    -542.8    -534.7    -529.3    -522.8    -517.9    -512.9    -472.0    -518.5    -545.1    -520.7
         Contribution to GDP Growth             0.1     -0.5      0.6      -0.7         -0.8      -0.1       0.4       0.3       0.2       0.2       0.2       0.2      -0.7      -0.5      -0.3       0.2
                                         (billions of dollars : a.r.)
      Nominal GDP                            10,745 10,884 11,117           11,271    11,473    11,649    11,846    12,028    12,188    12,348    12,498    12,655    10,487    11,004    11,749    12,422
       (% chng : a.r.)                           4.9      5.3         8.8       5.7       7.4       6.3       6.9       6.3       5.4       5.3       5.0       5.1       3.5       4.9       6.8       5.7

      INFLATION                          (quarter/quarter % change : a.r.)
      GDP Price Index                          2.7      1.1     1.4       1.6           2.8       3.2        2.8       2.4       1.7       1.8       1.7       2.0       1.7      1.8       2.3        2.1
      CPI All Items                            3.9      0.6     2.3       0.7           3.6       4.7        2.6       3.0       2.2       2.3       2.2       1.9       1.6      2.3       2.8        2.5
        Excl. Food & Energy                    1.3      1.1     1.4       1.0           1.8       3.0        1.8       2.4       2.2       2.2       2.2       1.8       2.3      1.5       1.8        2.2
        Food Prices                            2.1      2.4     3.3       5.0           2.6       4.0        3.6       2.7       2.3       2.8       2.8       2.3       1.8      2.1       3.5        2.8
        Energy Prices                         42.1     -7.6    10.8      -8.9          24.8      26.3        9.7       8.8       1.6       1.5       1.6       1.9      -5.8     12.2      11.3        5.2
        Services                               3.6      3.3     2.7       2.3           2.8       3.8        3.3       3.0       2.4       2.4       2.4       2.4       3.1      3.2       3.0        2.7
                                         (year/year % change)
      CPI All Items                            2.9     2.2          2.2        1.9       1.8       2.8       2.9       3.5       3.1       2.5       2.4       2.2

      FINANCIAL                          (average for the quarter)
      Fed Funds Rate                          1.25     1.25    1.00          1.00      1.00      1.00      1.41       1.89      2.25      3.25      3.75      4.00     1.67      1.13      1.32       3.31
      90 Day T-Bill                           1.17     1.06    0.94          0.93      0.93      1.09      1.59       2.00      2.45      3.35      3.90      4.20     1.63      1.03      1.40       3.48
      3-Month Libor                           1.33     1.24    1.13          1.17      1.12      1.30      1.81       2.20      2.70      3.65      4.25      4.60     1.80      1.22      1.61       3.80
      10 Year Bond Yield                      3.92     3.62    4.23          4.29      4.02      4.60      4.40       4.60      4.90      5.05      5.20      5.25     4.61      4.02      4.41       5.10

      FOREIGN TRADE                      (billions of dollars : a.r.)
      Current Account Balance                  -553     -536      -527       -508      -580      -589      -562       -550      -550      -545      -537      -529     -474      -531      -570       -540
      Merchandise Balance                      -552     -542      -539       -558      -603      -626      -614       -609      -606      -602      -600      -594     -483      -548      -613       -600
      Non-Merchandise Balance                    -1        7         12        50        24        36        52         59        56        57        62        66        9        17        43         60
                                         (average for the quarter)
      Exchange Rate (•/US$)                   119       119     117          109       107       110       110        107       103       101       103       104      125       116       108        103
      Exchange Rate (US$/Euro)                1.07     1.14    1.13          1.19      1.25      1.20      1.23       1.24      1.24      1.22      1.20      1.19     0.95      1.13      1.23       1.21
      Exchange Rate (US$/£)                   1.60     1.62    1.61          1.71      1.84      1.81      1.83       1.84      1.84      1.82      1.80      1.79     1.50      1.64      1.83       1.81

      INCOMES                            (billions of dollars : a.r.)
      Corporate Profits Before Tax            826.1    824.5     881.0      966.2     962.4     957.4     983.1     1044.5    1047.4    1056.2    1061.5    1112.8    758.0     874.5     986.8     1069.5
      Corporate Profits After Tax             602.1    600.0     642.3      713.9     705.9     698.1     719.4      786.4     769.4     774.6     776.5     824.2    574.2     639.6     727.5      786.2
                                         (year/year % change)
      Corporate Profits Before Tax            18.7    10.5    14.0           18.2      16.5      16.1      11.6        8.1       8.8      10.3       8.0       6.5       7.1     15.4      12.9        8.4
      Personal Income                          2.3     2.3     3.5            4.6       5.1       5.6       5.6        5.5       5.4       5.1       5.3       5.4       1.8      3.2       5.5        5.3
      Real Disposable Income                   0.7     1.1     3.5            3.9       4.2       3.9       3.0        3.7       3.8       3.9       3.6       3.4       3.1      2.3       3.7        3.6
                                         (average for the quarter)
      Savings Rate (%)                         1.0      1.1      1.9           1.3       1.2       1.7       2.2       2.7       2.8       3.0       3.1       3.2       2.0       1.4       2.0       3.1

      OTHER INDICATORS                   (average or end for the quarter : a.r.)
      Unemployment Rate (%)                    5.8     6.1       6.1      5.9           5.6       5.6       5.5        5.4       5.3       5.3       5.2       5.2      5.8       6.0       5.5        5.2
      Housing Starts (millions)               1.75    1.75     1.88     2.03           1.94      1.92      1.90       1.82      1.80      1.77      1.71      1.72     1.71      1.85      1.90       1.75
      Motor Vehicle Sales (millions)          16.0    16.4     17.4     16.8           16.3      16.5      16.8       16.5      16.9      16.8      16.5      16.7     16.8      16.6      16.5       16.7
                                         (quarter/quarter % change : a.r.)
      Civilian Employment Growth               1.9      0.7     0.2       2.1            0.1       1.2       2.2       1.2       1.8       1.4       1.4       1.8      -0.3       0.9       1.0       1.6
      Industrial Production                    0.9     -4.0     3.8       5.6            6.6       4.9       3.0       4.2       3.1       3.3       3.4       3.7      -0.6       0.3       4.5       3.5

      Note: Outlined areas represent forecast periods                                                                                                                                                                       16
                                                                                                          Asset-Backed Update
U.S. Securitization                                                                                                                 August/September 2004

                                             Asset Securitization Team
                                                      DIRECTOR OF SECURITIZATION
                                                 Jeff Phillips, Executive Managing Director
                                                                 (312) 461-7282

                                                      ORIGINATION & STRUCTURING
                                                      David Kucera, Managing Director
                                                              (312) 461-3893
                                                       Pete Walsh, Managing Director
                                                              (312) 461-2332
                                                       Tom Gervais, Managing Director
                                                              (214) 914-2239

                                                         FUNDING COORDINATION
                                                         Ron Kirchler, Vice President
                                                               (312) 461-3841
                                                         Lou Galassini, Vice President
                                                               (312) 461-5353

                                                           CONDUIT MANAGEMENT
                                                           Kristi Riffe, Vice President
                                                                  (312) 461-5640

The opinions, estimates and projections contained herein are those of Harris Nesbitt Corp. (“HNC”) as of the date hereof and are subject to change with-
out notice. HNC endeavors to ensure that the contents herein have been compiled or derived from sources that we believe are reliable and contain infor-
mation and opinions, which are accurate and complete. However, HNC makes no representation or warranty, express or implied in respect thereof,
takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss (whether direct or
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HNC is a subsidiary of Bankmont Financial Corp., which is a subsidiary of the Bank of Montreal. HNC is affiliated with Harris Bankcorp. Inc.

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Financial Services and Markets Act 2000 (Financial Promotion) Order 2001.                                                                                                              17

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