Monoline wrapping of asset-backed securities is on the decline because market players can achieve AAA-rated ABS through collateralized debt obligations for a better price, said Chris Flanagan, head of ABS research with JPMorgan in New York. He explained funding costs are a key consideration to players interested in a securitization and the economics of securitizing through senior or sub structures, which include AAA-BBB rated securities, are better than with a monoline wrapper. With CDOs, structures can embed various credit enhancements such as excess spread and subordination, which make them cheaper than bringing in a third-party monoline. "CDOs are crowding out monoline insurers," he said.
CDOs Crowd Out AAA-Rated Monolines
