From: "Hong, Victor, RBSGC" <Victor.Hong@rbsgc.

com>
To:
Sent: Monday, October 22, 2007 8:38:36 AM
Subject: ABS CDOs, in NAV mode for super-senior tranche valuation

Victor Hong, Risk Management

RBS Greenwich Capital
203-618-2753

______________________________________________
From: Hong, Victor, RBSGC
Sent: Monday, October 22, 2007 8:35 AM
To: Jin, Bruce, RBSGC; Gaskell, Ian, RBSGC
Subject: ABS CDOs, in NAV mode for super-senior tranche valuation

The market no longer views the weakest ABS CDOs as going-concern, cashflow-style deals. With heavy
downgrade momentum on underlying subprime ABS (reaching some LCF AAA bonds and the 2005 loan
cohort), various ones will likely soon fail their senior overcollateralization tests.

Instead, they are behaving effectively as distressed market-value CDOs, where bid-side asset pool
NAV becomes relevant to tranche valuations, because the super-senior investors may declare default
to trigger early deal terminations. As definitive illustration, investors have marked down the subordinate
tranches of such ABS CDO deals toward a 1.0 price/coupon multiple or lower, presuming full tranche
principal loss upon imminent collateral liquidation, with only minor coupon income beforehand.

Analyzing the respective super-senior tranches via a fundamental approach, pouring long-term
projected ABS cashflows down the normal CDO waterfall, seems much less applicable, in turn.
Some super-senior tranches might be worth 50:00 or lower now, depending upon potential sale proceeds
from the subprime ABS holdings during unwind.

Per recent but noisy trading color, single-name CDS on 2006 or 2007 BBB subprime ABS
require
upfront points around 70:00, implying crudely that the reference obligations might trade near
30:00
(aside from cash-CDS basis details). Therefore, if a mezzanine-ABS CDO consists largely of
such
bonds, early liquidation might generate funds to redeem only half of the notional principal for its
super-senior tranche (40-100 attachment points, top 60% of the capital structure).

Of course, this basic analysis may still be overly optimistic about super-senior tranches, if numerous SIV
or ABS CDO managers all jostle for market liquidity during the fourth quarter, or unless subprime
delinquency
pipelines promptly stabilize. Notably, this NAV-driven mark approximation dovetails with the
pricing
behavior of top-attachment TABX tranches, reaffirming their potential benchmarking role for
super-senior ABS CDO tranches. Your input is welcome. Thanks.
http://www.nytimes.com/2007/10/22/business/22market.html?ref=business

<<Citi_ABS.pdf>>

Victor Hong, Risk Management

RBS Greenwich Capital
203-618-2753

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