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CDO Spotlight: S&P's Latest Study Of Major Global Cash Flow CDO Managers Now Includes Both U.S. And European Managers
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Publication Date:    Jan 24, 2008 14:34 EST

CDO Spotlight: S&P's Latest Study Of Major Global Cash Flow CDO Managers Now Includes Both U.S. And European Managers
Primary Credit Analysts:
Milbert K Bentham, New York (1) 212-438-1198;
milbert_kiggundu-bentham@standardandpoors.com
Gordon Wright, London (44) 20-7176-8407;
gordon_wright@standardandpoors.com
Secondary Credit Analysts:
Daniel Upton, New York (1) 212-438-1484;
daniel_upton@standardandpoors.com
Peter Scaturro, New York (1) 212-438-3123;
peter_scaturro@standardandpoors.com
Additional Contacts:
Jennifer V Johnson, New York (1) 212-438-1712;
jennifer_vento-johnson@standardandpoors.com
Henry Albulescu, New York (1) 212-438-2382;
henry_albulescu@standardandpoors.com
David Tesher, New York (1) 212-438-2618;
david_tesher@standardandpoors.com
Publication date: 24-Jan-08, 14:34:19 EST
Reprinted from RatingsDirect


The global collateralized debt obligation (CDO) market experienced strong issuance trends during the first half of 2007, but all that changed at the end of June. As the second half got under way, several factors combined to create some far different conditions. The disruption in the residential mortgage-backed securities (RMBS) sector (and the resulting margin calls for managers invested in asset-backed securities [ABS]), the liquidity squeeze in the asset-backed commercial paper (ABCP) market (a large source of financing for CDOs), and investors' increasing reluctance to invest in structured finance securities—particularly CDOs—hurt managers and stymied new issuance. In fact, global CDO new issuance during the second half of 2007 fell to $113.3 billion, compared with $225.6 billion during the same period in 2006.

Since July 2007, the market has expressed concerns about several CDO managers' investment strategy, the value of ABS holdings in total return vehicles, margin calls, and subsequent financing and liquidity. Standard & Poor's Ratings Services now believes that the CDO market will experience consolidation in 2008 as some managers exit the business due to increased redemptions and staff or team departures. In addition, we expect that new CDO managers may exit the business due to their inability to meet costs with fewer assets under management and/or fees generated solely from CDOs. There were also various structural changes to CDOs that managers brought to market during the second half of 2007, including the appearance of static collateralized loan obligation (CLO) structures, bankers combining several warehouse lines into CDOs with either one or multiple managers, and managers deferring their management fees. We expect these structural changes will play a role in the statistics for 2008, including the number of CDO managers in the market.

Standard & Poor's latest study of the largest cash flow CDO managers, which marks the first time we included both U.S.- and European-based managers, focuses on the period from Jan. 1, 2007, through Sept. 30, 2007. The rankings set forth the largest managers by the original balance of Standard & Poor's rated liabilities (excluding CDO redemptions). They are not, however, a reflection of a manager's quality, experience across credit cycles, surveillance, asset selection, CDO downgrade history, or the breadth of the portfolio management team. (For our year-end 2006 study, see "CDO Spotlight: CDO of ABS Managers Dominate The Top Of The 2006 U.S. Cash Flow CDO Rankings for Outstanding Liabilities," published April 18, 2007, on RatingsDirect at www.ratingsdirect.com and on Standard & Poor's premier CDO Interface Web site at www.cdointerface.com.)

Our latest study reported on:

  • The 30 largest global cash flow CDO managers (and the most active issuers);
  • The largest global, U.S., and European-based CLO managers (and the most active issuers);
  • The largest global, U.S., and European-based CDO of ABS managers (and the most active issuers);
  • The largest trust preferred securities (TruPS) CDO issuers; and
  • New CDO managers in the U.S. and Europe.

While CDO maturities average 10-12 years, many managers have other funds under management that are financed through short-term financing. If total return funds become subject to redemptions and/or asset managers are unable to roll over their short-term financing, they may experience a decrease in assets under management and a reduction in fees. This could affect managers' ability to retain key investment professionals and manage existing CDOs under management.


Largest Global Cash Flow CDO Managers Are Based In The U.S.

During the first nine months of 2007, Standard & Poor's rated approximately $305 billion in global cash flow CDOs, $251 billion of which was in the U.S. Tables 1 and 2 show the largest global and U.S. cash flow CDO managers, respectively, as of Sept. 30, 2007. TCW Asset Management Co. (TCW) is the largest manager in terms of outstanding Standard & Poor's rated liabilities (see table 1). For 29 of the top 30 global cash flow CDO managers, at least three-quarters of their CDOs under management are in U.S. cash flow CDOs. Only Alcentra Inc./Alcentra Ltd. (Alcentra) derives at least 75% of its volume from European issuance, primarily from CDOs of European leveraged loans. Furthermore, 26 of the top-ranked global cash flow CDO managers are also among the top 30 U.S. cash flow CDO managers (see table 2).

Table 1
30 Largest Global Cash Flow CDO Managers As Of Sept. 30, 2007
Rank Rank as of Dec. 31, 2006* Current collateral manager or servicer Total liabilities ($) CDOs of ABS ($) CLOs ($)
1 1 TCW Asset Management Co. 41,352,121,800 35,187,121,800 3,220,000,000
2 12¶ Cohen Bros Financial Management 31,967,864,950 18,402,600,000 1,089,000,000
3 5 Credit Suisse Alternative Capital/Credit Suisse International 23,742,046,414 7,923,650,000 13,065,297,150
4 9 Harding Advisory LLC 21,663,675,000 20,644,475,000 —
5 4 BlackRock Financial Management Inc. 21,602,028,480 18,825,628,480 2,776,400,000
6 3 Bear Stearns Asset Management 21,105,650,000 19,169,300,000 1,689,350,000
7 2 Duke Funding Management LLC 19,861,477,200 19,861,477,200 —
8 N/A Structured Asset Investors/Structured Credit Partners LLC 19,093,075,333 18,006,389,000 1,086,686,333
9 8 Highland Capital Management L.P./Highland Capital Management Europe Ltd. 18,868,965,975 3,023,200,000 15,845,765,975
10 7 Vanderbilt Capital Advisors LLC 16,781,389,000 16,781,389,000 —
11 10 Babson Capital Management LLC/Babson Capital Europe Ltd. 16,535,574,266 2,406,800,141 10,226,449,125
12 6 Aladdin Capital Management LLC/Aladdin Capital Management UK LLP 15,783,929,500 12,025,700,000 3,758,229,500
13 11 ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. 15,699,636,640 14,006,225,000 1,693,411,640
14 16 GSC Partners/GSCP (NJ) L.P. 13,535,277,800 8,134,000,000 4,800,777,800
15 30 Princeton Advisory Group Inc. 13,142,211,000 10,551,831,000 2,590,380,000
16 15 Vertical Capital LLC 12,984,875,000 12,984,875,000 —
17 13 Deerfield Capital Management LLC 12,187,817,720 7,137,250,000 4,140,567,720
18 N/A Resource America Inc. 11,522,848,276 5,462,000,000 2,655,348,276
19 N/A Alcentra Inc./Alcentra Ltd. 10,321,032,270 9,976,880,770
20 N/A Fortress Investment Group LLC 10,041,641,125 4,422,647,125 5,618,994,000
21 22 Tricadia CDO Management LLC 9,946,350,000 9,167,350,000 779,000,000
22 24 MFS Investment Management 9,473,942,000 8,455,187,000 566,455,000
23 14 General Electric Asset Management Corp. 9,327,910,604 2,247,100,000 5,600,404,000
24 18 Declaration Management & Research LLC 9,179,150,000 9,179,150,000 —
25 N/A Rabobank International 8,803,679,730 7,513,940,000 1,229,739,730
26 17 ICP Asset Management LLC 8,778,200,000 8,778,200,000 —
27 19 PIMCO 8,747,403,050 3,840,700,000 3,631,263,050
28 N/A Taberna Capital Management 8,619,546,100 — —
29 N/A Stone Tower Debt Advisors LLC 8,285,606,000 1,543,000,000 6,432,231,000
30 27 Prudential Investment Management/Pramerica Investment Management 8,153,630,279 284,700,000 4,879,835,873
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. ¶The ranking is based on Strategos Capital Management LLC, which is a division of Cohen Bros Financial Management. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable.

Table 2
30 Largest U.S. Cash Flow CDO Managers As Of Sept. 30, 2007
Rank Global rank Rank as of Dec. 31, 2006* Collateral manager or servicer Total liabilities ($)
1 1 1 TCW Asset Management Co. 41,352,121,800
2 2 12¶ Cohen Bros Financial Management 30,921,440,000
3 4 9 Harding Advisory LLC 21,663,675,000
4 5 4 BlackRock Financial Management Inc. 21,602,028,480
5 6 3 Bear Stearns Asset Management 21,105,650,000
6 3 5 Credit Suisse Alternative Capital 20,630,397,264
7 7 2 Duke Funding Management LLC 19,861,477,200
8 8 N/A Structured Asset Investors/Structured Credit Partners LLC 19,093,075,333
9 10 7 Vanderbilt Capital Advisors LLC 16,781,389,000
10 9 8 Highland Capital Management L.P. 16,284,700,000
11 12 6 Aladdin Capital Management LLC 15,271,775,000
12 13 11 ACA Capital Holdings 15,216,800,000
13 15 30 Princeton Advisory Group Inc. 13,142,211,000
14 16 15 Vertical Capital LLC 12,984,875,000
15 11 10 Babson Capital Management LLC 12,373,575,141
16 17 13 Deerfield Capital Management LLC 11,801,150,000
17 14 16 GSC Partners/GSCP (NJ) L.P. 11,422,250,000
18 18 N/A Resource America Inc. 11,156,500,000
19 21 22 Tricadia CDO Management LLC 9,946,350,000
20 22 24 MFS Investment Management 9,473,942,000
21 23 14 General Electric Asset Management Corp. 9,327,910,604
22 24 18 Declaration Management & Research LLC 9,179,150,000
23 25 N/A Rabobank International 8,803,679,730
24 26 17 ICP Asset Management LLC 8,778,200,000
25 29 N/A Stone Tower Debt Advisors LLC 8,285,606,000
26 — N/A Church Tavern Advisors LLC 8,127,575,000
27 — N/A 250 Capital LLC 7,975,300,000
28 20 N/A Fortress Investment Group LLC 7,880,494,000
29 — 28 Terwin Money Management LLC 7,832,250,000
30 — N/A NIR Capital Management LLC 7,411,300,000
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. ¶The ranking is based on Strategos Capital Management LLC, which is part of Cohen Bros Financial Management. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable.


Largest global managers accounted for 46% of 2007 issuance

The top 10 managers have remained fairly consistent with the U.S. rankings as of our year-end 2006 study. Other standings may have shifted due, in part, to the European transactions that we included in our calculations, as well as varied issuance levels across managers in 2007. In the first nine months of 2007, the top 30 global CDO managers accounted for 46.4% of cash flow CDO issuance (see table 3). Of those managers, only Pacific Investment Management Co. (PIMCO) was absent from the new-issue market during this period.

Table 3
30 Highest-Volume Global Cash Flow CDO Issuers Across Assets Between Jan. 1, 2007, And Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities ($) U.S. managed CDOs ($) European managed CDOs ($)
1 Cohen Bros Financial Management 13,803,421,300 13,449,330,000 354,091,300
2 Harding Advisory LLC 11,199,250,000 11,199,250,000 —
3 Structured Asset Investors/Structured Credit Partners LLC 8,640,965,000 8,640,965,000 —
4 TCW Asset Management Co. 7,972,841,800 7,972,841,800 —
5 Credit Suisse Alternative Capital/Credit Suisse International 7,544,440,750 6,936,968,000 607,472,750
6 BlackRock Financial Management Inc. 5,800,868,480 5,800,868,480 —
7 GSC Partners/GSCP (NJ) L.P. 5,249,758,600 4,468,900,000 780,858,600
8 Bear Stearns Asset Management 4,878,300,000 4,878,300,000 —
9 250 Capital LLC 4,703,500,000 4,703,500,000 —
10 NIR Capital Management LLC 4,422,500,000 4,422,500,000 —
11 Princeton Advisory Group Inc. 4,388,900,000 4,388,900,000 —
12 ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. 4,375,311,640 3,892,475,000 482,836,640
13 Highland Capital Management L.P./Highland Capital Management Europe Ltd. 4,246,324,000 3,264,100,000 982,224,000
14 Vertical Capital LLC 4,216,375,000 4,216,375,000 —
15 Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. 3,644,175,320 2,451,000,000 1,193,175,320
16 AllianceBernstein L.P. 3,641,308,000 3,641,308,000 —
17 Tricadia CDO Management LLC 3,622,100,000 3,622,100,000 —
18 Alcentra Inc./Alcentra Ltd. 3,515,202,270 752,750,000 2,762,452,270
19 Taberna Capital Management 3,353,341,100 1,417,000,000 1,936,341,100
20 Resource America Inc. 3,337,348,276 2,971,000,000 366,348,276
21 Fortress Investment Group LLC 3,296,955,000 2,299,994,000 996,961,000
22 MFS Investment Management 3,264,000,000 3,264,000,000 —
23 Collineo Asset Management GmbH 3,039,796,000 — 3,039,796,000
24 Investec Bank (U.K.) Ltd. 2,975,783,008 — 2,975,783,008
25 Vanderbilt Capital Advisors LLC 2,974,000,000 2,974,000,000 —
26 State Street Global Advisors 2,869,000,000 2,869,000,000 —
27 KKR Financial Advisors 2,784,150,000 2,784,150,000 —
28 Church Tavern Advisors LLC 2,672,500,000 2,672,500,000 —
29 Goldentree Asset Management LLC/Goldentree Asset Management L.P. 2,534,138,636 1,979,000,000 555,138,636
30 Zais Group LLC 2,498,105,000 2,498,105,000 —
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.

Through Sept. 30, 2007, the largest global CDO managers had a strong CDO of ABS presence and CDOs of ABS represented more than half of the outstanding issuance for 19 of the top 30 global CDO managers. This was partly explained by the larger deal sizes for ABS relative to CLOs. In the first nine months of 2007, the average cash flow CDO of ABS was approximately $956 million in rated liabilities, compared with $526 million for the average cash flow CLO. Since Sept. 30, 2007, there has been a decline in CDO of ABS issuance due, in part, to developments in the RMBS market. Furthermore, the outstanding volume for the CDO of ABS managers remains particularly fluid given the underlying assets' weak performance. From Oct. 15, 2007, and Jan. 22, 2008, Standard & Poor's has received 24 acceleration notices, 32 event of default notices, and 10 liquidation notices on CDOs of ABS. We continue to monitor the developments and expect to see some changes in the rankings of the largest CDO managers as CDOs of ABS liquidate and new-issuance levels drop off. For additional information on Standard & Poor's residential mortgage-related rating actions on U.S. CDO transactions, please visit RatingsDirect, at www.ratingsdirect.com, or www.spviews.com.

Many of the largest global CDO managers were diversified across more than one CDO asset type as of Sept. 30, 2007. In fact, in our study, 22 of the top 30 global managers did so. Duke Funding Management LLC, ICP Asset Management LLC, Declaration Management & Research LLC, and Vanderbilt Capital Advisors LLC have 100% of all Standard & Poor's rated cash flow issuance in CDOs of ABS. In contrast, CLOs represented three-quarters of all rated cash flow volume for Alcentra (97%), Highland Capital Management L.P./Highland Capital Management Europe Ltd. (Highland; 84%), and Stone Tower Debt Advisors LLC (78%).


Global CLO Issuance Is Diversified Across Multiple Managers

CLOs have been a mainstay of the CDO market since their inception in 1998, and CLO volume has continued to increase year over year, even amid the high corporate defaults in 2000-2003. Since 1998, Standard & Poor's has rated more than $350 billion in cash flow CLOs across more than 130 CLO managers. Highland and Credit Suisse Alternative Capital/Credit Suisse International (Credit Suisse) were the top two largest global and U.S. cash flow CLO managers, respectively, as of Sept. 30, 2007, the same standings they held in our 2006 study. Table 4 lists the largest global cash flow CLO managers and shows when these managers entered the U.S. and/or European CLO markets. Tables 5 and 6 show the largest CLO managers in the U.S. and Europe. Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. (Halcyon) is the newest of the top 30 global CLO managers, having entered both the U.S. and European CLO markets in 2006.

Table 4
30 Largest Global Cash Flow CLO Managers As Of Sept. 30, 2007
Rank Rank as of Dec. 31, 2006* Collateral manager or servicer Total liabilities ($) First S&P rated U.S. managed cash flow CLO vintage First S&P rated European managed cash flow CLO vintage
1 1 Highland Capital Management L.P./Highland Capital Management Europe Ltd. 15,845,765,975 1997 2005 (replacement manager)
2 2 Credit Suisse Alternative Capital/Credit Suisse International 13,065,297,150 1999 2004
3 6 Babson Capital Management LLC/Babson Capital Europe Ltd. 10,226,449,125 1999 2001
4 N/A Alcentra Inc./Alcentra Ltd. 9,976,880,770 2003 2001
5 9 Stone Tower Debt Advisors LLC 6,432,231,000 2004 —
6 5 RiverSource Investments LLC 6,152,775,000 2000 —
7 4 Ares Management Ltd. 5,787,225,250 1999 2007
8 N/A Fortress Investment Group LLC 5,618,994,000 2004 —
9 3 General Electric Asset Management Corp. 5,600,404,000 1999 —
10 18 Blackstone Debt Advisors L.P. 5,587,174,150 2003 2006
11 8 Sankaty Advisors LLC 5,578,363,850 2001 2006
12 17 KKR Financial Advisors 5,497,650,000 2005 —
13 7 INVESCO Senior Secured Management Inc. 5,286,373,395 1997 2002
14 26 Carlyle High Yield Partners/CELF Investment Advisors Ltd. 5,181,530,050 1999 2005
15 19 GSO Capital Partners L.P. 4,968,435,000 2003 —
16 28 Prudential Investment Management/Pramerica Investment Management 4,879,835,873 2002 2005
17 25 GSC Partners/GSCP (NJ) L.P. 4,800,777,800 2002 2003
18 N/A Mizuho Investment Management (U.K.) Ltd. /Mountain Capital Advisors 4,689,950,840 2004 2004
19 N/A Harbourmaster Capital Ltd. 4,212,882,470 — 2004
20 27 AIG Global Investment Corp./AIG Global Investment Corp. (Europe) Ltd. 4,212,003,650 2004 2006
21 12 Deerfield Capital Management LLC 4,140,567,720 2002 2007
22 N/A Avoca Capital Holdings 4,096,254,130 — 2003
23 N/A Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. 4,044,650,520 2006 2006
24 N/A Goldentree Asset Management LLC/Goldentree Asset Management L.P. 3,938,830,246 2002 2006
25 13 MJX Asset Management LLC 3,859,850,000 2002 —
26 14 Black Diamond Capital Management LLC 3,819,281,900 1999 —
27 16 Aladdin Capital Management LLC/Aladdin Capital Management UK LLP 3,758,229,500 2001 2007
28 21 Octagon Credit Investors/Octagon Credit Investors (U.K.) Ltd. 3,678,656,297 1999 2007
29 20 PIMCO 3,631,263,050 1998 2002
30 10 Stanfield Capital Partners LLC 3,568,000,000 2000 —
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable.

Table 5
30 Largest U.S. CLO Managers As Of Sept. 30, 2007
Rank Global CLO rank Rank as of Dec. 31, 2006* Collateral manager or servicer Total liabilities ($) First S&P rated U.S. managed CLO vintage
1 1 1 Highland Capital Management L.P. 13,261,500,000 1997
2 2 2 Credit Suisse Alternative Capital 9,953,648,000 1999
3 5 9 Stone Tower Debt Advisors LLC 6,432,231,000 2004
4 6 5 RiverSource Investments LLC 6,152,775,000 2000
5 3 6 Babson Capital Management LLC 6,064,450,000 1999
6 8 N/A Fortress Investment Group LLC 5,618,994,000 2004
7 9 3 General Electric Asset Management Corp. 5,600,404,000 1999
8 12 17 KKR Financial Advisors 5,497,650,000 2005
9 7 4 Ares Management Ltd. 5,343,675,000 1999
10 15 19 GSO Capital Partners L.P. 4,968,435,000 2003
11 11 8 Sankaty Advisors LLC 4,899,800,000 2001
12 13 7 INVESCO Senior Secured Management Inc. 4,192,652,565 1997
13 21 12 Deerfield Capital Management LLC 4,140,567,720 2002
14 25 13 MJX Asset Management LLC 3,859,850,000 2002
15 10 18 Blackstone Debt Advisors L.P. 3,839,500,000 2002
16 26 14 Black Diamond Capital Management LLC 3,819,281,900 1999
17 30 10 Stanfield Capital Partners LLC 3,568,000,000 2000
18 — 11 Highbridge/Zwirn 3,507,800,000 2004
19 — N/A ING Investment Management 3,475,250,000 1997
20 — N/A CapitalSource Finance LLC 3,413,510,598 2004
21 20 27 AIG Global Investment Corp. 3,259,316,000 2004
22 27 16 Aladdin Capital Management LLC 3,246,075,000 2001
23 28 N/A Octagon Credit Investors 3,228,998,297 1999
24 — 23 TCW Asset Management Co. 3,220,000,000 2000
25 16 28 Prudential Investment Management 3,172,100,000 2002
26 — 22 Silver Point Capital L.P. 3,130,000,000 2004
27 — N/A American Capital 2,993,500,000 2004
28 24 N/A Goldentree Asset Management LLC/Goldentree Asset Management L.P. 2,966,500,000 2002
29 — N/A Lehman Brothers Asset Management LLC 2,963,440,000 2004
30 — 30 Gulf Stream Asset Management LLC 2,885,250,000 2002
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report. N/A—Not applicable.

Table 6
30 Highest-Volume Global CLO Managers Between Jan. 1, 2007 And Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities ($)
1 Highland Capital Management L.P./Highland Capital Management Europe Ltd. 4,246,324,000
2 Alcentra Inc./Alcentra Ltd. 3,515,202,270
3 KKR Financial Advisors 2,784,150,000
4 Credit Suisse Alternative Capital/Credit Suisse International 2,572,040,750
5 Goldentree Asset Management LLC/Goldentree Asset Management L.P. 2,534,138,636
6 Stone Tower Debt Advisors LLC 2,483,981,000
7 Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. 2,465,175,320
8 Fortress Investment Group LLC 2,299,994,000
9 Princeton Advisory Group Inc. 2,293,900,000
10 Churchill Financial LLC 1,971,500,000
11 MezzVest 1,965,397,500
12 Ares Management Ltd. 1,834,450,250
13 Babson Capital Management LLC/Babson Capital Europe Ltd. 1,690,606,375
14 Oak Hill Advisors LP/Oak Hill Advisors (Europe) LLP 1,526,021,860
15 Avoca Capital Holdings 1,507,486,000
16 Carlyle High Yield Partners/CELF Investment Advisors Ltd. 1,498,339,350
17 Deerfield Capital Management LLC 1,486,667,720
18 Commercial Finance Industrial Corp. 1,350,750,000
19 Intermediate Capital Managers Ltd. 1,329,822,510
20 American Capital 1,317,500,000
21 Morgan Stanley Investment Management 1,311,021,440
22 Lehman Brothers Asset Management LLC 1,258,155,350
23 MJX Asset Management LLC 1,250,500,000
24 Harbourmaster Capital Ltd. 1,202,017,770
25 Jeffries Capital Management 1,176,000,000
26 Mizuho Investment Management (U.K.) Ltd. /Mountain Capital Advisors 1,167,557,000
27 Octagon Credit Investors 1,156,419,000
28 Blackstone Debt Advisors L.P. 1,143,750,000
29 Indicus Advisors LLP 1,136,815,638
30 GSC Partners/GSCP (NJ) L.P. 1,111,258,600
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.

Our study showed that the global cash flow CLO market is generally diversified across multiple managers. In fact, the top 30 global cash flow CLO managers represented half of the $107 billion of cash flow CLOs rated in the first nine months of 2007 and half of all global rated CLO volume to date. Of those top 30 managers, PIMCO, General Electric Asset Management Corp., and Fortress Investment Group LLC did not participate in the new-issue market in the first nine months of 2007. Table 7 shows the most active CLO managers globally in 2007 with Highland, KKR Financial Advisors (KKR), and Alcentra at the top.

Table 7
15 Highest-Volume European CLO Managers Between Jan. 1, 2007 And Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities (€)
1 Alcentra Ltd. 2,059,250,000
2 MezzVest 1,425,000,000
3 Avoca Capital Holdings 1,121,000,000
4 Intermediate Capital Managers Ltd. 985,300,000
5 Halcyon Structured Asset Management L.P./Halcyon Loan Investors L.P. 898,700,000
6 Harbourmaster Capital Ltd. 878,300,000
7 Indicus Advisors LLP 859,760,000
8 CELF Investment Advisors Ltd. 847,500,000
9 CVC Cordatus Group Ltd. 810,872,338
10 CQS Cayman L.P. 795,005,514
11 Elgin Capital LLP 762,690,000
12 Highland Capital Management Europe Ltd. 720,000,000
13 Morgan Stanley Investment Management 705,800,000
14 New Amsterdam Capital 647,400,000
15 Mizuho Investment Management (U.K.) Ltd. 585,000,000
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.

When segregating out U.S. cash flow CLOs, 22 of the top 30 global cash flow CLO managers were also among the top 30 U.S. cash flow CLO managers (see table 4 above). The six managers that were among the top U.S. CLO managers but were not ranked globally did not have European CLO businesses. However, we have observed that it has become increasingly prevalent for managers to have a European platform to take advantage of the opportunities in the growing European leveraged loan market and the demand for CDOs of European leveraged loans. Indeed, 17 of the top 30 global CLO managers and 12 of the top 30 U.S. CLO managers have affiliates or independent CLO teams in Europe. Conversely, two of the top 30 global CLO managers (Avoca Capital Holdings and Harbourmaster Capital Ltd.) have issued CLOs only in Europe.


European Cash Flow CLO Managers Continue To Gain Ground

The European cash flow CLO market developed after that of the U.S. Before the advent of the Eurozone in 1999, markets were generally fragmented and currency risk was expensive to hedge. In addition, some managers found it difficult to achieve adequate portfolio diversification until relatively recently, and even now diversification can usually be comfortably achieved only by mixing euro- and sterling-denominated loans. Standard & Poor's began rating European CLOs in 2001, including the debut transactions for Alcentra (doing business as Barclays Capital Asset Management Ltd. at the time) and Babson Capital Europe Ltd. (doing business as Duke Street Capital Debt Management Ltd. at the time), which have become two of the largest CLO managers in the region.

After slow but steady progress until 2005, 2006 and 2007 saw rapid growth in the number of CLO managers in Europe, with 34 new managers debuting European transactions. It appeared that many of these were U.S. CLO managers opening offices in London, in part, to take advantage of the attractive spreads on many European loans and the additional collateral diversity. In fact, the move from the U.S. into Europe is not a recent development. PIMCO and INVESCO Senior Secured Management Inc. (INVESCO) closed transactions in 2002 that were partly securitized by European leveraged loans, and GSC Partners followed in 2003 with a wholly European transaction. By third-quarter 2007, 22 of the 59 European CLO managers were offshoots of U.S.-based CLO management groups and an additional three were affiliated to U.S. CLO managers. The U.S. offshoots moving into Europe in 2006 included Blackstone Debt Advisors L.P (Blackstone), Sankaty Advisors LLC, Oak Hill Advisors L.P., Halycon, AIG Global Investment Corp., Goldentree Asset Management L.P., and Eaton Vance Management. In 2007, Aladdin Capital Management and Ares Management closed their first European transactions, in both cases more than six years after issuing their first U.S. CLOs.

The U.S. managers that have moved into Europe have varying strategies. Almost all recruit some European analysts and administration professionals at an early stage. However, we have observed that experienced CDO and credit professionals are often transferred from the U.S. to augment or run the local team. While some U.S. groups allow their European teams a high degree of autonomy, the European credit committee often includes U.S.-based senior officers. This can allow the parent company to more closely monitor the development of the CDO management franchise outside the U.S. Interestingly, we have seen only two examples to date of U.S. managers buying into existing European CLO management businesses, both of which are located in London: Babson Capital Europe's acquisition of Duke Street Capital Debt Management, which was completed in 2004; and Highland Capital's acquisition of ING's European CLO business, which was completed in 2005. In addition, all of the U.S. offshoots to date are based in London, which is where a high proportion of European leveraged loans are arranged and marketed. Of the 59 European managers as of Sept. 30, 2007, 46 were based in London, four in Dublin, three in Paris, three in Switzerland, one in Frankfurt, one in Amsterdam, and one in Madrid.

Table 8 lists the top 15 largest CLO managers in Europe, 10 of which were also among the top 30 global CLO managers. Seven of the top 15 largest European cash flow CLO managers are part of a U.S. CLO entity that had issued U.S. CLOs before expanding into Europe: Credit Suisse International, CELF Investment Advisors Ltd., Highland, PIMCO, GSCP (NJ) L.P., Blackstone, and Babson Capital Europe Ltd.

Table 8
15 Largest European Cash Flow CLO Managers As Of Sept. 30, 2007
Rank Global CLO rank Collateral manager or servicer Total liabilities (€) First S&P rated European CLO issuance
1 4 Alcentra Ltd. 5,872,035,000 2001
2 3 Babson Capital Europe Ltd. 3,570,750,000 2001
3 19 Harbourmaster Capital Ltd. 3,274,900,000 2004
4 22 Avoca Capital Holdings 3,184,950,000 2003
5 18 Mizuho Investment Management (U.K.) Ltd. 2,704,750,000 2004
6 — Intermediate Capital Managers Ltd. 2,504,600,000 2002
7 2 Credit Suisse International 2,468,252,031 2005
8 14 CELF Investment Advisors Ltd. 2,121,500,000 2005
9 1 Highland Capital Management Europe Ltd. 2,043,500,000 2005 (replacement manager)
10 — Prudential M&G Investment Management Ltd. 1,635,650,000 2003
11 17 GSC Partners/GSCP (NJ) L.P. 1,633,000,000 2003
12 — Pemba Credit Advisers 1,499,400,000 2002
13 — Elgin Capital LLP 1,433,250,000 2006
14 — MezzVest 1,425,000,000 2007
15 10 Blackstone Debt Advisors L.P. 1,396,500,000 2006
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.


Robust Issuance During The First Three Quarters Of 2007 Influences Global Cash Flow CDO Of ABS Manager Rankings

Standard & Poor's rated more than $177 billion in global cash flow CDOs of ABS in the first nine months of 2007, including $160 billion in the U.S. and $17 billion in Europe. Consequently, 28 of the top 30 global CDO of ABS managers are also among the top 30 U.S. CDO of ABS managers (see tables 9 and 10). TCW Group Inc., Harding Advisory LLC, and Duke Funding Management LLC are the largest global CDO of ABS managers. Collineo Asset Management GmbH (Collineo; based in Dortmund, Germany) and Wharton Asset Management (based in London) are the two top 30 global CDO of ABS managers based outside the U.S. GSC Partners, NIR Capital Management, and ICP Asset Management LLC are the newest of the top 30 global CDO of ABS managers, having entered the market in 2006.

Table 9
30 Largest Global CDO Of ABS Managers As Of Sept. 30, 2007
Rank Rank as of Dec. 31, 2006* Collateral manager or servicer Total liabilities ($) First S&P rated U.S. managed CDO of ABS vintage
1 1 TCW Asset Management Co. 35,187,121,800 2001
2 6 Harding Advisory LLC 20,644,475,000 2004
3 2 Duke Funding Management LLC 19,861,477,200 2003
4 3 Bear Stearns Asset Management 19,169,300,000 2004
5 4 BlackRock Financial Management Inc. 18,825,628,480 2002
6 9¶ Cohen Bros Financial Management 18,402,600,000 2005
7 23 Structured Asset Investors/Structured Credit Partners LLC 18,006,389,000 2002
8 5 Vanderbilt Capital Advisors LLC 16,781,389,000 2002
9 8 ACA Capital Holdings/ACA Capital Management (U.K) Pte. Ltd. 14,006,225,000 2002
10 10 Vertical Capital LLC 12,984,875,000 2003
11 7 Aladdin Capital Management LLC/Aladdin Capital Management UK LLP 12,025,700,000 2005
12 22 Princeton Advisory Group Inc. 10,551,831,000 2004
13 12 Declaration Management & Research LLC 9,179,150,000 2000
14 17 Tricadia CDO Management LLC 9,167,350,000 2004
15 11 ICP Asset Management LLC 8,778,200,000 2006
16 19 MFS Investment Management 8,455,187,000 2002
17 29 GSC Partners/GSCP (NJ) L.P. 8,134,000,000 2006
18 20 Church Tavern Advisors LLC 8,127,575,000 2003
19 N/A Credit Suisse Alternative Capital/Credit Suisse International 7,923,650,000 2000
20 N/A Terwin Money Management LLC 7,832,250,000 2004
21 N/A 250 Capital LLC 7,603,300,000 2005
22 N/A Rabobank International 7,513,940,000 2001
23 N/A NIR Capital Management LLC 7,411,300,000 2006
24 14 C-BASS 7,273,006,000 2002
25 13 Deerfield Capital Management LLC 7,137,250,000 2000
26 15 NIBC Credit Management Inc./NIBC Bank N.V. 6,422,500,000 2004
27 N/A Collineo Asset Management GmbH 6,214,004,400 —
28 N/A Wharton Asset Management 5,740,900,000 —
29 16 Capmark Investments L.P. 5,697,950,000 2001
30 N/A Zais Group LLC 5,668,305,000 2001
*The methodology for the 2006 study did not combine related management teams or include any European-based managers. ¶The ranking is based on Strategos Capital Management LLC, which is a division of Cohen Bros Financial Management. §ZAIS Group Investment Advisors Ltd.'s CDOs are no longer outstanding as of Sept. 30, 2007. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.

Table 10
30 Highest-Volume Global CDO Of ABS Managers Between Jan. 1, 2007 And Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities ($)
1 Harding Advisory LLC 10,180,050,000
2 Cohen Bros Financial Management 8,389,500,000
3 Structured Asset Investors/Structured Credit Partners LLC 8,275,250,000
4 TCW Asset Management Co. 7,235,841,800
5 Credit Suisse Alternative Capital/Credit Suisse International 4,972,400,000
6 BlackRock Financial Management Inc. 4,880,868,480
7 Bear Stearns Asset Management 4,472,000,000
8 NIR Capital Management LLC 4,422,500,000
9 250 Capital LLC 4,331,500,000
10 Vertical Capital LLC 4,216,375,000
11 GSC Partners/GSCP (NJ) L.P. 4,138,500,000
12 ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. 3,569,600,000
13 AllianceBernstein L.P. 3,318,308,000
14 Tricadia CDO Management LLC 3,253,600,000
15 Collineo Asset Management GmbH 3,039,796,000
16 MFS Investment Management 2,979,000,000
17 Vanderbilt Capital Advisors LLC 2,974,000,000
18 State Street Global Advisors 2,869,000,000
19 Church Tavern Advisors LLC 2,672,500,000
20 Investec Bank (U.K.) Ltd. 2,597,762,000
21 Zais Group LLC 2,498,105,000
22 Babcock & Brown 2,138,000,000
23 Dynamic Credit Partners LLC 2,131,900,000
24 Princeton Advisory Group Inc. 2,095,000,000
25 Maxim Capital Management 1,995,900,000
26 Terwin Money Management LLC 1,983,000,000
27 ZS Structured Credit Capital Management L.P. 1,972,000,000
28 Declaration Management & Research LLC 1,950,000,000
29 SCM Advisors LLC 1,908,000,000
30 Cairn Financial Products Ltd. 1,901,476,338
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.

Our study indicated that the cash flow CDO of ABS market appears to be as diverse as the CLO market: The top 30 managers accounted for 50% of CDO of ABS issuance during the first nine months of 2007 and approximately 56% of cumulative CDO of ABS issuance. Tables 10 and 11 show the largest CDO of ABS issuers in the first nine months of 2007 and 2006, respectively. Harding Advisory had the highest CDO of ABS issuance in the first nine months of 2007, at $10.2 billion, and was among the top 10 in terms of new CDO of ABS issuance in 2006 (at approximately $6.3 billion). The top 11 most active CDO of ABS managers in 2007 each issued more than $4 billion during the first nine months of 2007 and, with the exception of 250 Capital LLC, each was among the top 25 highest-volume CDO of ABS issuers in 2007.

Table 11
30 Highest-Volume Global CDO Of ABS Issuers In 2006
Rank Collateral manager or servicer Total liabilities ($)
1 TCW Asset Management Co. 9,928,000,000
2 Cohen Bros Financial Management 9,021,600,000
3 ICP Asset Management LLC 7,667,000,000
4 Duke Funding Management LLC 7,620,827,200
5 Aladdin Capital Management LLC/Aladdin Capital Management UK LLP 7,055,700,000
6 Vanderbilt Capital Advisors LLC 6,301,510,000
7 Harding Advisory LLC 6,266,175,000
8 Vertical Capital LLC 6,257,000,000
9 ACA Capital Holdings/ACA Capital Management (U.K.) Pte. Ltd. 4,877,000,000
10 NIBC Credit Management Inc./NIBC Bank N.V. 4,697,500,000
11 BlackRock Financial Management Inc. 4,141,750,000
12 GSC Partners/GSCP (NJ) L.P. 3,995,500,000
13 Princeton Advisory Group Inc. 3,963,580,000
14 Tricadia CDO Management LLC 3,850,000,000
15 Church Tavern Advisors LLC 3,689,450,000
16 Resource America Inc. 3,226,000,000
17 Declaration Management & Research LLC 3,129,150,000
18 Highland Capital Management L.P./Highland Capital Management Europe Ltd. 3,023,200,000
19 NIR Capital Management LLC 2,988,800,000
20 Structured Asset Investors/Structured Credit Partners LLC 2,940,550,000
21 Terwin Money Management LLC 2,900,500,000
22 Fortis Investements 2,872,800,000
23 Credit Suisse Alternative Capital/Credit Suisse International 2,761,250,000
24 Vero Capital Management 2,486,775,000
25 Bear Stearns Asset Management 2,460,000,000
26 Wharton Asset Management 2,445,000,000
27 Deerfield Capital Management LLC 2,296,300,000
28 C-BASS 2,250,500,000
29 SCM Advisors LLC* 2,076,000,000
30 State Street Global Advisors 2,066,680,000
*Formerly Seneca Capital Management LLC. Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.


European Markets Are Not Always Important To European CDO Of ABS Managers

The European ABS, commercial mortgage-backed securities (CMBS), and RMBS markets are smaller and less diversified than their respective U.S. counterparts. As a result, most European CDO of ABS managers manage portfolios backed predominantly by U.S. and global ABS, as well as European ABS. Many European managers, including Collineo, Faxtor Securities B.V. (Faxtor), and Gulf International Bank (U.K.) Ltd., initially focused on the regional market before closing their first CDO of U.S. ABS. For others, notably Cairn Financial Products, Cambridge Place, Wharton Asset Management, Cheyne Capital, and Investec, U.S. ABS always formed an integral part of their CDO business plans.

More than 25 CDO of ABS managers are either based in or have investment teams in Europe. The vast majority of these manage some U.S. assets, but only a few have investment teams or affiliates in the U.S., notably Cambridge Place, Collineo, and Fortress Investment Group. Of these, Cambridge Place was founded with offices in London and Boston, Mass. Fortress, on the other hand, began in the U.S. but has expanded to become a global investment group. Collineo is a member of Hypo Real Estate Group, which is based in Germany. For many years, Collineo focused on managing CDOs backed by European ABS. However, in 2006, Hypo Real Estate founded Collineo Asset Management USA, which recently closed its first CDO focusing exclusively on U.S. assets. Table 12 lists 10 European managers with more than €1 billion of Standard & Poor's rated CDO of ABS paper as of Sept. 30, 2007.

Table 12
10 Largest European CDO Of ABS Managers As Of Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities (€) First S&P rated European CDO of ABS issuance
1 Collineo Asset Management GmbH 4,804,802,365 2002
2 Wharton Asset Management 4,523,253,805 2004
3 Cairn Financial Products Ltd. 3,696,132,031 2006
4 Cambridge Place Collateral Management LLC 3,448,064,812 2004
5 Investec Bank (U.K.) Ltd. 1,939,160,614 2007
6 Faxtor Securities B.V. 1,813,782,761 2003
7 Fortress Investment Group LLC 1,629,669,975 2005
8 Gulf International Bank (U.K.) Ltd. 1,443,495,318 2002
9 Omicron Investment Management GmbH 1,386,302,690 2003
10 Solent Capital Partners LLP 1,165,755,575 2004
Note: The bolded managers were featured in a published Standard & Poor's CDO Manager Focus or European Manager Briefing report.


CDO Managers Are Slowly Entering The TruPS Market

Standard & Poor's rated its first TruPS CDO transaction, MM Community Funding II Ltd., in 2001. Since then, the TruPS CDO market has grown and includes bank, insurance, and REIT TruPS collateral. Table 13 lists the top TruPS CDO managers. Taberna Capital and Cohen Brothers' TruPS entity, Dekania, have the largest share of the TruPS CDO market. The new entrants into this market have expanded at a slower pace than the larger CLO and CDO of ABS managers. In addition, Taberna Capital broke into Europe with a TruPS CDO in the first nine months of 2007.

Table 13
Eight Largest CDO Of TruPS Issuers As Of Sept. 30, 2007
Rank Collateral manager or servicer Total liabilities ($) First S&P rated global CDO of TruPS issued
1 Taberna Capital Management 6,683,205,000 2005
2 Cohen Bros Financial Management 6,480,840,000 2003
3 FSI Capital LLC* 4,824,500,000 2002
4 Resource America Inc.* 3,405,500,000 2002
5 The Bank of New York 1,900,000,000 2005
6 Mayer Brown Rowe & Maw 1,700,000,000 2004
7 Kodiak CDO Management LLC 1,424,700,000 2006
8 Stonecastle Partners LLC 1,276,500,000 2004
*Both FSI Capital LLC's and Resource America Inc.'s totals include Trapeza Capital Management LLC's total issuance of $3,405,500,000.


Growth Of New Managers In 2008 May Decline With Slower CDO Issuance

As of Sept. 30, 2007, more than 40 new managers entered the global cash flow CDO market since Jan. 1, 2007. Standard & Poor's defines a new manager as one that is new to CDOs, one that is new to a CDO asset type, or one that has a new team or parent company. As of Sept. 30, 2007, 34 new U.S. cash flow CDO managers (including Greywolf Capital Management L.P. and Brigade Capital Management LLC, which both started separate ABS and CLO teams) closed transactions totaling $20.6 billion, or 8% of U.S. cash flow CDO volume, in the first three quarters of 2007 (see table 14). This includes 15 new CLO managers and 19 new CDO of ABS managers for $5.4 billion in CLO volume and $12.2 billion in CDO of ABS volume. In comparison, in 2006, 52 new U.S. cash flow CDO managers closed transactions totaling $50 billion, or 17% of total rated volume in that year. Of the new CDO of ABS entrants in 2007, two managers each closed two transactions.

Table 14
New Cash Flow CDO Managers In 2007
Volume No. of CDOs
   New U.S.-based cash flow CLO managers
Canaras Capital Management $279,000,000 1
CIT Asset Management LLC $467,400,000 1
Citigroup Alternative Investments $495,175,000 1
Cratos Capital Partners LLC $455,000,000 1
Fore Research & Management L.P. $460,000,000 1
Greywolf Capital Management L.P. $462,000,000 1 CLO and 1 CDO of ABS
Par IV Capital Management $345,800,000 1
PPM America Inc. $380,450,000 1
The Foothill Group Inc. $465,000,000 1
Brigade Capital Management LLC $457,500,000 1 CLO and 1 CDO of ABS
Grandview Capital Management LLC $277,500,000 1
Pangaea Asset Management LLC $282,500,000 1
T2 Advisors LLC $249,250,000 1
250 Capital LLC $372,000,000 1
   New U.S.-based CDO of ABS managers
Allegiance Advisors LLC $720,000,000 1
Basis Capital Group $736,300,000 2
Countrywide Alternative Asset Management Inc. $482,500,000 1
CTXM $490,500,000 1
Forge ABS LLC $1,495,500,000 1
Greywolf Capital Management L.P. $995,300,000 1 CLO and 1 CDO of ABS
Highland Financial Holdings Group LLC $1,096,500,000 1
Luminent Mortgage Capital Inc. $383,000,000 1
NovaStar Asset Management Co. $347,200,000 1
Sailfish Capital Partners LLC $1,248,200,000 1
Waterfall Asset Management $410,000,000 1
Brigade Capital Management LLC $320,000,000 1 CLO and 1 CDO of ABS
Koch Global Capital LLC $1,480,000,000 1
American Capital $757,550,000 1 CRE CDO
Ballyrock Investment Advisors $483,250,000 1
FSI Capital LLC $759,725,000 1
   New European-based CLO managers
Resource Europe Management Ltd.* € 271,530,000 1
Plemont Portfolio Managers Ltd. € 313,250,000 1
Penta Management Ltd. € 363,000,000 1
Morgan Stanley Investment Management € 705,800,000 2
Indicus Advisors LLP € 859,760,000 2
CVC Cordatus Group Ltd. € 810,872,338 1
Caja de Ahorros y Monte de Piedad de Madrid € 448,000,000 1
Ares Management Ltd. € 326,500,000 1
Aladdin Capital Management UK LLP € 377,000,000 1
ACA Capital Management (U.K) Pte. Ltd. € 359,200,000 1
Faxtor Securities B.V. € 271,400,000 1
LightPoint Capital Management LLC¶ € 293,500,000 1
Deerfield Capital Management LLC € 282,900,000 1
Octagon Credit Investors (U.K.) Ltd. € 330,000,000 1
   New European-based CDO of ABS managers
Eurohypo Asset Management Ltd. £335,000,000 1
Investec Bank (U.K.) Ltd. $2,597,762,000 4§
CPM Advisers Limited $288,000,000 1
Aurelius Capital Management GmbH $287,000,000 1
   New European-based CDO of TruPS manager
TABERNA Capital Management € 1,434,250,000 1
*Included in Resource America Inc.'s total. ¶Acquired by Lehman Brothers Asset Management on Sept. 30, 2007. §Three deals are denominated in U.S. dollars and one is denominated in euros (the euros were converted to U.S. dollars for this study).

The European cash flow CDO market saw 19 new managers, including four CDOs of ABS, one TruPS CDO, and 14 CLO managers, for total volume of €10.3 billion in the first nine months of 2007. Three of the 14 new CLO managers in Europe were established leveraged loan investors, one was linked to a private equity house, one was a new boutique founded by experienced CDO and leveraged loan professionals, and one was an existing CDO management group diversifying into leveraged loans. The other eight were offshoots of existing U.S.-based CLO management businesses.

It appears that a potential downturn in the credit cycle and the subprime market dislocation that occurred during the summer of 2007 contributed to the decline in the number of new global and U.S. managers entering the market. Nevertheless, five new CLO managers were able to close deals during third-quarter 2007: Brigade Capital Management, Faxtor, Grandview Capital Management LLC, Pangaea Asset Management LLC, and T2 Advisors LLC. Furthermore, Koch Global Capital LLC and Aurelius Capital Management GmbH entered the CDO of ABS market by each closing one transaction in third-quarter 2007. Standard & Poor's will continue to monitor the manager landscape, and we expect to publish an update to this study.


Survey Methodology: Measuring Management Size Through CDO Liabilities Outstanding

Our analysis considers all outstanding notes rated by Standard & Poor's New York and European offices as of Sept. 30, 2007. We also provide information on CDOs managed by privately held collateral managers that otherwise might be difficult for investors to obtain. Please see the appendix for a description of our methodology used in this survey.

In its current form, the U.S. cash flow CDO market is, for the most part, characterized by the following subsegments: CLOs, CDOs of ABS, and high-yield and investment-grade collateralized bond obligations (CBOs). Although pure synthetic CDO structures with no excess spread have exhibited strong U.S. growth over the past few years, it is still difficult to calculate manager size in this area because of the various structures that synthetic CDOs can take. Therefore, using rated CDO liabilities may not be as meaningful an indicator for synthetic CDOs as it is for cash flow CDOs. However, because of the strong issuance of hybrid CDO transactions during the past two years, particularly in CDOs of ABS, Standard & Poor's has included these transactions as part of our study.

The study includes all rated CDO tranches that were outstanding as of Sept. 30, 2007, but it excludes rated notes that were fully repaid on that date. Standard & Poor's did not adjust for partial liability paydowns. That is, a note is included at its original par amount even if it is amortizing. We also included revolving credit facilities at their fully funded amounts.


Adjustments for management changes

Over the past few years, Standard & Poor's has observed a dynamic CDO collateral manager landscape. Entire management teams have moved, managers have merged as a result of consolidation at the parent company level, and others have assumed responsibilities for existing CDOs as replacement managers. Standard & Poor's has reflected these reported changes in our analysis.


Appendix: Ranking Methodology

  • As with previous studies, we classified each CDO managed by the primary asset type, according to the CDO's eligibility guidelines.
  • We included all CDOs rated by Standard & Poor's New York and European offices.
  • For this study, we examined the largest managers in CLOs, CDOs of ABS, and TruPS CDOs. Nevertheless, we also included other cash flow CDOs, such as corporate investment-grade, emerging market, and balance sheet CLOs; CDOs of CDOs, commercial real estate (CRE) CDOs, and high-yield CBOs, in each manager's cumulative liabilities outstanding. In addition, we included hybrid CDOs of ABS (with excess spread).
  • Hybrid CDOs of ABS, CDOs of CDOs, and CRE CDOs were included under each manager's CDO of ABS totals.
  • For each manager, we included any debt tranche that Standard & Poor's rated and was outstanding as of Sept. 30, 2007.
  • We listed the sum of the original amounts of all outstanding classes of active transactions under management. We subtracted a class of notes that was repaid in full or had a balance of zero from the original issue amount, but we did not include a partially amortized class.
  • In cases where we needed to convert euros or British pounds to U.S. dollars; or U.S. dollars or British pounds to euros, we used the exchange rate as of the closing date of the transaction.
  • We consolidated asset managers that formed part of the same company and managed the same or similar CDO types.
  • We classified collateral managers by product types in line with our existing methodology for CDO Manager Focus reports.
  • We did not include synthetic or market value CDOs or CDO retranchings in these listings.
  • We did not include the amounts of any unrated CDOs, unrated tranches, combination securities, or equity.
  • We included CDOs that issue commercial paper (CP) as long as the CDO issued additional term debt.

Manager listings

Transactions under management include those that the managers have assumed as a replacement manager, to the extent that Standard & Poor's was notified of the change. If a manager changed its legal name only (without changing the management team itself), Standard & Poor's reported an equivalent transaction amount under the new legal name.

CDOs under management also included "static" transactions in which the collateral was initially selected by the manager and for which only limited or no collateral substitution was permitted, as long as the collateral manager was listed as the primary managing or administrative entity.


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