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Fitch: Subprime Exposure Still High But Manageable for U.S. ABCP


NEW YORK - An examination of Fitch rated U.S. Asset-Backed Commercial Paper (ABCP) programs reveals that subprime related mortgage exposure decreased sharply in fourth quarter-2006 (4Q06) versus a significant spike in the year earlier period. While subprime exposure remains high on an historical basis, Fitch believes the levels are manageable and investors remain well insulated from the pressures facing other market participants.

The decrease in subprime exposure is primarily attributable to slowing originations amid the housing market slowdown and the resulting pay down out of warehouse facilities, as well as the closing of several subprime single seller facilities during 2006, said Managing Director and ABCP group head Mike Dean. ABCP investors are also fairly well-insulated because in addition to conduit level support, transaction specific protections include conservative advance rates and the existence of market value swaps within typical collateral facilities and the highly rated, senior positions in the majority of the securities backed programs.

Overall, subprime mortgage exposure was found in 24 partially supported Fitch-rated ABCP programs representing a cross section of multisellers, securities-backed and single-sellers. These programs had direct exposure to facilities or securities backed by subprime mortgages originated by 25 different subprime originators.

Fitchs examination reveals that subprime exposure comprised 3.3% ($7.6 billion) of its U.S. rated ABCP (non-fully supported) outstandings as of the most recent reporting period (4Q06). Notably, that figure is down more than 30% from its 4Q05 peak of approximately than $11 billion. While subprime exposure is declining, it remains more than three times above 2004s average of $2.2 billion, reflecting the robust growth in the sector in the last two years.


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