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Monoline wraps to become less common in HEL, says S&P

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PHOENIX, Ariz. – With the growing popularity of net-interest margin securitizations and an increasing demand from CDO managers for subordinated HEL paper, monoline-wrapped offerings are expected to decrease in the near term, said Tom Warrack, director of structured finance ratings at Standard & Poor’s, at a preview of his panel session at the IMN/Fabozzi ABS West conference last week.

Because of the partial triggers built into monoline-wrapped deals, sureties do not allow for the securitization of net interest. Still, demand for NIM securitizations heated up significantly towards the tail-end of last year. In fact, the benefits of NIM securitizations to issuers have become so evident that even subprime auto lenders are starting to offer them.

Additionally, the strong CDO bid for sub HEL paper from top-tier issuers, such as GMAC-RFC, is also expected to lead to less business for monolines. Interestingly, this may actually benefit deep MI insurers such as PMI and Radian, whose business peaked in mid-2001 but has since dipped. However, Warrack noted that while private mortgage insurance will come back into fashion, it will not be at the levels seen last year.

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