BA Structured Credit Strat 4-19-02

Structured Credit Products
Weekly Review April 19, 2002

Credit Derivatives, Synthetic CDOs, and Cash CDOs
Structured Credit Strategy Weekly

Credit Derivatives Flow
♦ Credit spread markets largely moved sideways
♦ Further tightening in ASW/CDS basis
♦ Telecoms and autos were the notable outperformers
♦ Fitch: First Quarter HY Default/Recovery Stats Lang Gibson
CDO Market Analysis & Overview
♦ Multi-sector and HY loan CDO barometers tightened on the week; corporates steady
♦ IG corporate CDO equity appears relatively attractive on a risk-adjusted basis
Martín González, CFA
♦ CDO issuance slowed on the week, with only two cash deals printing
♦ 2002 YTD CDO Volume stands at $36.2bn, 60% of which is synthetic
♦ Six CDOs augment our global visible CDO pipeline, split evenly between US and Non-US Erin McCutcheon
♦ Moody’s and Fitch combined for actions on the ratings of 12 CDOs
CDO Topical Research & Strategy

♦ Are HY CDOs Overleveraged?
Despite some unintended structural features we do not believe HY CDOs were overleveraged
Cash flow CDOs are structured to withstand a 12-year default (and recovery) cycle
We expect that 2001 and 2002 will be the peak years for CDO downgrades
♦ How Have HY CDO Structures Evolved?
High yield CDO structures have evolved to offer more protection
Some early structural features have had unintended consequences
Diminimus cushions in key quality tests are largely responsible for early vintage downgrades
Appendix: CDS and CDO Charts and Graphs
Weekly CDS Spread Change, as of 4/19/02 (bps) Base Case CDO ROE Barometer Changes, as
10
of 4/12/02 Newly Priced CDOs, as of 4/19/02
5 HY Bonds (2.0% HY Loans (1.5% IG Corporates Multi-Sector Deal Type Issuer Size
CADR) CADR) (0.25% CADR) (0.25% CADR)
0 0
(2) (3) Cash–IG Corps San Miguel CDO $230.0
(5) (3) (20)
(8)
(18)
(40)
(10) Ayt. 9 FT-Pymes
Weekly change (bps)
(60)
(64) Cash–HY Loans €189.5
(15) ICO III
(80)
(20)
(100) Source: Banc of America Securities LLC.
(25) (28)
(120)
(30)
(140) (156)
US Autos US Financials US Telecoms. US Retail
(160)
(180)
Source: Banc of America Securities LLC.
For Structured Credit Strategy Information, please visit our website at http://bofa.com/capitalmarkets
Banc of America Securities
Structured Credit Strategy Weekly, April 19, 2002
Credit Derivatives Flow* Martín González
Credit spread markets largely Credit spread markets largely moved sideways on the week as the market continued to focus on
moved sideways new issue supply and as market participants re-assessed the direction of spreads. The high
grade cash market was modestly wider after a prolonged period of general spread tightening,
Further tightening in ASW/CDS
while the CDS market continued to see marginal spread tightening— resulting in a modest
basis
ASW/CDS basis tightening. Earnings season continued to add some volatility to these markets,
although announcements have generally been in line with or better than expectations. At the
same time, indications of more uncertainty in the timing of macroeconomic recovery (e.g.,
Greenspan’s indication that the Fed would not begin to turn back its monetary stimulus policies
as soon as was being priced in by the market), and remaining concerns over the speed of a
corporate earnings rebound put a stop to prior weeks’ spread tightening trend. The continued
record pace of high grade new issue supply coming to the market—$6.5 billion week to date or
$34.5 billion month to date through Thursday—have also limited further spread tightening. In
contrast, CDS spreads on the margin continued to grind in on back of strong demand from
synthetic portfolio transactions.
Telecoms and autos were the On a sector-by-sector basis, telecoms and autos were the notable outperformers. The gains in
notable outperformers the telecom sector were largely a reversal from the prior week’s scare regarding WorldCom’s
viability; WorldCom retraced 125—175 bps from prior week’s levels. In turn, the gains in the
auto sector were largely on the back of better-than-expected Q1 earnings and full-year earnings
guidance. Similarly banks, brokers and finance companies demonstrated a tightening bias,
particularly credits subject to spread widening of late (e.g., Merrill following the announcement
of the NY attorney general’s investigation). In contrast, the already technically tight retail
names showed a more mixed performance.
Credits in the communications space saw across-the-board spread tightening. In addition to the
notable reversal of the prior week’s spread widening in WorldCom (which ended the week at
700/750), Sprint came in 30 bps to end at 250/310 while other names—such as AOL, AT&T,
and Viacom—were all in all 5–10 bps tighter.
Auto credits (ex auto suppliers) were also notable for their consistent –albeit more modest—10
bps of tightening week over week. The movement in the sector started after GM issued its
1Q02 earnings announcement (which beat market expectations) and increased its full-year 2002
earning guidance. Ford’s better-than-expected earnings announcement gave added assurance to
the sector. In addition to the auto names, Visteon was also in 10 bps, though TRW and Delphi
were flat week over week.
Among the banks, brokers and finance companies, the credits that had recently blown out
began to reverse themselves. On news of an imminent settlement with the NY attorney general
and on the back of better-than-expected earnings, Merrill ended 7 bps tighter at 60/68.
Similarly, names such as Household, JP Morgan, and MBNA—all names that had widened of
late—came in 4–9 bps each.
In contrast, performance was more mixed among the technically tighter retail names. The
outperformers were Toy R Us (20 bps tighter), Eastman Kodak (10 bps tighter), and Federated
(5 bps tighter). The underperformers were Neiman-Marcus (10–15 bps wider) and Sears
Acceptance (5 bps wider). Nordstrom remained unchanged week over week at 80/100.
Fitch: First Quarter HY Fitch recently reported its first quarter high yield default and recovery statistics. On the one
Default/Recovery Stats hand, Fitch reported that the first quarter defaults hit a new peak in high yield defaults (4.9% in
the first quarter;13.6% on a trailing twelve-month basis or 12% on trailing LTM—excluding
fallen angels) in recent years. On the other hand, the minimal decline in the defaulted paper’s
pricing relative to its pricing at the beginning of the year indicates the market had largely
priced in these defaults. In other words, first quarter’s defaulted paper had a weighted average
*
All CDS quotes are for five years unless stated otherwise. Please reference SCP Report Credit Default Swaps Primer, June 12, 2001 for introduction to credit default swaps
and their applications. Also see SCP Report CDS Pricing Convention: Crib Sheet for Cash Investors, August 20, 2001 for further brief explanation of CDS pricing terminology.
2
price of 24.2% of par, which is just slightly below its average pricing at the beginning of the
year of only 26.7% of par—a minimal incremental dollar loss. In fact, the defaulted paper’s
weighted-average price of 24.2% of par compares favorably to an average recovery of only
15% of par for 2001 defaults.
Lang Gibson
CDO Market Analysis & Overview Erin McCutcheon
Multi-sector and HY loan CDO Corporate spreads (both HY and IG) continued to stay put last week, with all of the focus being
barometers tightened on the placed on the booming new issue market as issuers continued to term out their CP funding and
week; corporates steady
lock in historically low yields. As a result, HY and IG barometers stayed steady a second week
in a row at 18.3% and 20.1%, respectively. By contrast, the multi-sector (MS) and HY loan
barometers tightened 150 bps and 70 bps, respectively, to 18.6% and 15.4%. The relatively low
level of the HY loan barometer is primarily driven by new issue BB/BB– institutional loan
pricing, which was L+300 last week. The more a loan manager can source collateral from the
secondary market, where spreads are generally wider than L+300, and still keep defaults to a
minimum, of course, the more likely the deal’s equity can achieve an attractive IRR. Of
particular note was the 8-bp tightening in the MS CDO funding gap (to 178 bps—the lowest it
has reached since pre-Sept. 11). The drivers behind this tightening were a 10-bp tightening in
BBB CDO spreads (20% of pool) and a 20-bp tightening in BB CMBS (10% of pool).
IG corporate CDO equity appears Among our four sectors, the IG corporate barometer was the highest last week and the second-
relatively attractive on a risk- highest (behind MS CDOs) for the one-month average readings. To the extent that investors are
adjusted basis
comfortable with the collateral structure in a particular IG corporate CDO, we feel 20.1%
(significantly higher for synthetics) is an attractive base case ROE. On a risk-adjusted basis,
spread and default volatility are relatively low in IG corporates as compared to HY bonds and
loans. Furthermore, the IG corporate barometer was 420 bps higher on the year and 520 bps
wider versus the 2001 average pre-Sept. 11, respectively. Conversely, the other three sectors
are 300–450 bps tighter on the year and 90–610 bps tighter versus the 2001 average (pre-Sept.
11).
CDO issuance slowed on the The week’s issuance consists of two cash deals—PIMCO’s San Miguel IG CBO and AyT. 9
week, with only two cash deals FTPYME ICO III, which is the third of Spain’s “Titulizacion de Activos” SME loan
printing
securitizations. These deals together contributed $400 million in CDO issuance, bringing YTD
volume to approximately $14.3 billion.
PIMCO’s San Miguel transaction set new benchmarks for the year for pricing on arbitrage cash
flow IG CBOs brought by top-tier CDO managers. The unwrapped AAA class printed at 6mL
+ 43, which is only one bp wider than the MBIA-wrapped AAAs of Atlantic Asset
Management’s recent Clearwater Funding 2002-A, and six bps inside the unwrapped AAA
class of the same deal. While the AA notes from both deals printed at the same level—6mL +
80—San Miguel’s BBBs also priced at the much tighter level of 6mL + 250, which is a full 100
bps inside Clearwater Funding’s levels, and 75 bps tighter than Aladdin Capital’s IG CBO
BBB’s print in January. San Miguel’s cheaper BBB levels can primarily be attributed to its
split-rating of Baa1/BBB, the relatively high equity deposit of 5.7%, and PIMCO’s relative
clout as a manager. Demand for this deal was also stirred by a slower primary market, which
resulted from thin funding gaps in IG and HY corporate-backed CDOs.
3
Figure 1. 2002 YTD Global CDO Volume

2002 YTD Cash CDO Volum e YTD 2002 YTD Synthetic CDO Volum e
Cash-IG Cash-
Corp Other
11% 15%
Cash-MS B/S Port.
39% 40% Sw ap
45%
Cash-HY
Cash-HY Ln Managed
Bd 29% 15%
6%
Total: $14.3bn Total: $21.9bn
2002 YTD CDO Volume stands at YTD 2002, $14.3bn and $21.9bn of global cash and synthetic CDOs, respectively, have been
$36.2bn, 60% of which is issued (Figure 1). Synthetic issuance has exceeded cash issuance (YTD) at 60% of the total
synthetic
volume. The largest share of cash CDO volume is accounted for by MS CDOs, with 39% of the
total, while HY Loan deals represent the next largest portion, with 29%. Only three HY bond
CDOs—two of which are non-US—have printed this year, therefore accounting for a very
small 6% of total cash CDO issuance. In the synthetic CDO category, portfolio swaps continue
to account for the majority of YTD volume, with a 45% market share. Balance sheet CDOs are
running a close second, at 40% of the synthetic volume YTD. Managed synthetics make up the
remaining 15% of volume, with only three deals closed visibly so far this year.
Six CDOs augment our global The visible pipeline for US deals grew on the week with the addition of three deals—all of
visible CDO pipeline, split evenly them CMBS-backed, multi-sector CDOs. These new announcements include a CDO for
between US and Non-US
Blackrock, which is currently marketing its BB tranche, GMAC’s G-Force III, and an AJAX II
deal for ING Capital Advisors.
One cash CDO and two synthetics were added to the European pipeline this week. Duke Street
Capital is working on its €750 million Duchess II CDO, which will be similar in collateral and
structure to the €750 million Duchess I loan deal (closed last June). On the synthetic side,
Nationwide Building Society is arranging Argon Capital, a GBP1.5 billion partially funded
balance sheet deal that, notably, will be the first public CBO by a building society. Also,
Morgan Stanley is preparing a JPY91 billion deal, referencing 91 Japanese companies in 27
sectors.
4
Figure 2. US and European/Asian CDO Pipeline
US Cash CDO Pipeline European/Asian CDO Pipeline
Alternative IG Corp
11% 7%
Loans Cash
Synthetic
40% (# deals)
HY Bonds (# deals)
44%
16% 56%
Multisector
26%
Total: $18.0bn Total: 48 deals
The visible US CDO pipeline remains robust, containing 82 deals for a total notional volume of
$44.0 billion. The visible US cash CDO pipeline currently stands at $18.0 billion (Figure 2),
with HY loan CDOs accounting for a full 40% of the market share and $7.3 billion slated to
come to market. Multi-sector CDOs are a somewhat distant second, with $4.7 billion
accounting for 26% of the pipeline. US synthetic deals occupying our pipeline aggregate about
$26.0 billion, which is 59% of our visible US CDO pipeline. With the addition of three deals,
there are now 48 CDOs occupying the visible European/Asian pipeline—56% of these deals
are synthetic.
Moody’s and Fitch combined for Ratings activity on the week consisted of actions taken on notes from 12 CDOs, as those from
actions on the ratings of 12 CDOs five were downgraded, and notes from seven were placed on review with negative implications.
Moody’s took action on eight CDOs, downgrading notes from three and placing notes from
five deals on review for possible downgrade. Fitch accounted for the balance of the ratings
activity, as they downgraded notes of two deals and also placed notes from two more on Rating
Watch Negative.
Please see the appendix for detailed pricing and ratings information.
CDO Topical Research & Strategy Lang Gibson
This week we evaluate the following topics:

♦ Are HY CDOs overleveraged?
♦ How have HY CDO structures evolved?
Are HY CDOs Overleveraged?

Despite some unintended We believe that the trend in HY bond CDO downgrade rates may continue through much of
structural features we do not 2002 before abating in early-2003 due to the lag in re-rating CDOs in response to collateral
believe HY CDOs were
overleveraged
downgrades—which themselves lag market pricing. Considering the record-high level of HY
bond CDO downgrades in 2001 (97 by Moody’s count), we must ask whether HY CDOs were
overleveraged given the volatility of the underlying assets. We do not believe HY CDOs were
overleveraged, although there were some underlying structural features that resulted in
unintended consequences. A substantial majority of total 2001 CDO downgrades occurred in
corporate-backed CDOs. Consequently, in this section we address how the market is adapting
structures primarily for high yield bond and loan CDOs.
5
Cash flow CDOs are structured to Despite Moody’s 205 CDO tranche downgrades reported in 2001—four times the 2000
withstand a 12-year default (and downgrades—the severity of downgrades in the CDO sector was less than that of the overall
recovery) cycle
corporate collateral sector (in terms of number of notches). Furthermore, cash flow CDOs are
structured to withstand a 12-year default (and recovery) cycle—not just one period. The
empirical average for high yield default indices is between 3% and 4%—depending on the
index—with the better managers outperforming this average. Therefore, we believe that even in
today’s high default environment, the standard 2% base case constant annual default rate
(CADR) used to project losses over the life of a HY bond CDO is reasonable for a deal
managed by a high-quality manager. CDO collateral default statistics provided by Moody’s
CDO indices present empirical evidence that top-tier HY managers have indeed achieved or
improved upon this 2% CADR assumption. Furthermore, despite the low recovery rates
registered in recent quarters—which has been dragged down particularly by the telecom
sector—we expect a reversion to the mean of the 40% area for HY bonds and 70% area for HY
loans.
We expect that 2001 and 2002 will Since early vintage HY bond CDOs are currently being hit by a combination of front-loaded
be the peak years for CDO defaults and record-low recovery rates, we expect that 2001 and 2002 will be the peak years for
downgrades
CDO downgrades. However, we expect long-term CDO downgrade rates to be lower relative to
corporates over the 10–12 year life span of a CDO. Furthermore, with just a few exceptions,
only proven managers with a track record of outperforming these default indices are now
allowed entry into the market, particularly since Sept. 11. Therefore, in our opinion, we can
expect substantially better performance from post-2001 vintage CDOs, particularly when we
factor in the wider funding gaps that are prevalent in these structures and the improved
structural characteristics, which we discuss below.
How Have HY CDO Structures Evolved?

High yield CDO structures have CDOs are structured to withstand par value deterioration and collateral rating migration via
evolved to offer more protection active management, trapping and diverting excess spread and other means. According to Fitch
Ratings, “Sustained par-value loss and/or collateral credit deterioration can exceed the stress
that particular tranches were designed to withstand while maintaining their ratings.”
Consequently, high yield CDO structures have evolved to offer more protection for the senior-
most noteholders, preserve excess interest in the deal and to mitigate O/C compression.
Furthermore, there is more emphasis today on maintaining a fair balance between the debt and
equity holders. An example of a structural innovation that has been incorporated into recent
deals is the interest deflection test, which diverts excess spread away from equity holders and
into the purchase of additional collateral well before O/C levels hit their triggers to de-leverage
the deal.
Some early structural features Some structural features implemented in the early days of CDOs have been found to be
have had unintended detrimental to most noteholders in a bearish environment. Citing the same Fitch Ratings report
consequences
above, “Many older deals are constructed with indenture covenants that make their
management in a stressful environment difficult. These circumstances lead to situations where
the current risk outlook for a particular tranche may be materially different than at the time the
CDO was originally rated. In this event, an adjustment to the rating may be warranted to reflect
the changed risk profile of the rated security.”
For instance, old rules required managers to preserve par through their trading. Although this
tactic did preserve par, it encouraged trading risky assets for other potentially risky assets,
which could have been (and often was) detrimental to the deal. Therefore, this feature has been
removed through the evolution of the structure. Overall, the market has been very quick to
detect any deficiencies in old structural rules and change them to help deals weather markets
characterized by higher-than-expected defaults and lower recovery rates. We believe that if
recovery rates had been closer to their historical averages, most deals would have withstood the
current high level of defaults, which have arguably been no higher than those levels used in the
rating agencies’ stress scenarios at deal initiation.
6
Diminimus cushions in key quality Finally, we believe that the historically low HY bond CDO funding gaps prevalent in the 1997–
tests are largely responsible for 99 period resulted in a number of deals having inadequate cushions in critical quality tests.
early vintage downgrades
Effectively, many of these deals would not have been economic without the structuring of small
cushions into critical tests, such as the overcollateralization (O/C) test and Weighted Average
Spread (WAS) test. In the original deals, there was only one O/C calculation for all of the debt.
That evolved into multiple O/C triggers (primarily driven by the fact that with lower yields and
the accrued interest, the single O/C level would be below one). These new triggers were also
set to activate very quickly. If a manager experienced just a few defaults, a deal would begin to
de-lever. Further, deals were marketed using very aggressive assumptions, such as unrealistic
call prices and back-loaded default curves. With substantially improved HY bond CDO
funding gaps prevailing since the second quarter of 2000, there has been little incentive to
structure inadequate cushions in these key quality tests or to make aggressive base case
assumptions. Consequently, newer HY bond deals should have adequate cushions in key tests
and therefore, perform substantially better than 1997–99 vintage deals.
7
APPENDIX
Credit Derivatives Flow
Benchmark Credit Default Five-Year Spreads

Relative Value Versus Asset Swap Levels*
Current 1 Week Ago 2 Weeks Ago 3 Weeks Ago
US Industrial Rating Instrument 18-Apr-02 11-Apr-02 4-Apr-02 29-Mar-02
Reference Credits Ticker Mdy's/S&P/Fitch (See Below) Long Short Long Short Long Short Long Short
CDS 45 55 50 55 45 55 45 55
IBM IBM A1/A+/AA– AS 10 15 15 20 5 10 5 10
RV 35 (40) 35 (35) 40 (45) 40 (45)
CDS 70 80 65 75 65 75 70 80
Sears Roebuck Acceptance S A2/A/A– AS 70 80 70 80 65 75 60 70
RV 0 0 (5) 5 0 0 10 (10)
CDS 200 220 190 220 200 230 200 230
AT&T T A2/A/A– AS 135 145 135 145 135 145 145 150
RV 65 (75) 55 (75) 65 (85) 55 (80)
Current 1 Week Ago 2 Weeks Ago 3 Weeks Ago

Bank, BD & Fin Co Rating Instrument 18-Apr-02 11-Apr-02 4-Apr-02 29-Mar-02
Reference Credits Ticker Mdy's/S&P/Fitch (See Below) Long Short Long Short Long Short Long Short
CDS 45 55 52 57 52 60 55 63
JP/Chase JPM Aa3/AA–/AA– AS 35 45 40 45 43 48 42 47
RV 10 (10) 12 (12) 9 (12) 13 (16)
CDS 188 195 200 208 190 198 190 195
Ford Motor Credit F A2/A/A+ AS 160 165 172 177 160 165 175 180
RV 28 (30) 28 (31) 30 (33) 15 (15)
CDS 138 148 152 158 150 160 155 163
Household Fin Corp HI A2/A/A AS 85 95 117 112 120 125 120 130
RV 53 (53) 35 (46) 30 (35) 35 (33)
CDS 60 68 50 55 50 55 50 55
Merrill Lynch MER Aa3/AA–/AA AS 40 50 15 20 5 15 10 20
RV 20 (18) 35 (35) 45 (40) 40 (35)
*Asset swap levels derived from actual or estimated reference credit’s comparable maturity bond levels. CDS (Credit Default Swap) long is an investor’s return for being
long, or selling, reference credit default protection. AS (Asset Swap) long is an investor’s return for being long, or buying, reference credit exposure. RV (Relative Value) or
attractiveness of a CDS versus a bond for going long or short the reference credit.
US Financial Benchmarks US Industrial Benchmarks

275
255 280
235 260
240
215
220
195
200
175
180
155
160
135
140
115
120
95
100
75
80
55
60
35
40
15
20
9/1/00
10/1/00
11/1/00
12/1/00
1/1/01
2/1/01
3/1/01
4/1/01
5/1/01
6/1/01
7/1/01
8/1/01
9/1/01
10/1/01
11/1/01
12/1/01
1/1/02
2/1/02
3/1/02
4/1/02
11/16/00
12/16/00
1/16/01
2/16/01
3/16/01
4/16/01
5/16/01
6/16/01
7/16/01
8/16/01
9/16/01
10/16/01
11/16/01
12/16/01
1/16/02
2/16/02
3/16/02
4/16/02
JPM (Aa3/A+) F (A2/A) IBM (A1/A+) S (A2/A-)

HI (A2/A) MER (Aa3/AA–) T (A1/A)
Source: Banc of America Securities LLC. Source: Banc of America Securities LLC.
8
Indicative Five-Year Credit Default Swap Spreads

US
Industry Reference Entity Data 12-Apr-02 15-Apr-02 16-Apr-02 17-Apr-02 18-Apr-02 Delta
Autos DaimlerChrysler bid 5yr 128 126 126 116 116 (12)
offer 5yr 134 134 134 124 124 (10)
Delphi bid 5yr 100 100 100 100 100 0
offer 5yr 110 110 110 110 110 0
Ford Motor Credit bid 5yr 200 200 200 188 188 (12)
offer 5yr 205 208 208 195 195 (10)
GMAC bid 5yr 128 130 130 115 115 (13)
offer 5yr 134 135 135 122 122 (12)
TRW bid 5yr 170 170 170 170 170 0
offer 5yr 190 190 190 190 190 0
Visteon Corp bid 5yr 180 180 180 180 170 (10)
offer 5yr 215 215 215 215 200 (15)
B&F Bear Stearns bid 5yr 60 60 60 60 60 0
offer 5yr 68 68 68 68 68 0
Capital One Bank bid 5yr 225 230 230 230 230 5
offer 5yr 250 260 260 260 260 10
Citigroup Inc bid 5yr 29 29 29 29 29 0
offer 5yr 34 34 34 34 34 0
GECC bid 5yr 60 60 60 60 60 0
offer 5yr 70 70 70 70 70 0
Goldman Sachs bid 5yr 44 44 44 45 45 1
offer 5yr 50 50 50 50 50 0
Household bid 5yr 147 147 147 138 138 (9)
offer 5yr 153 153 153 148 148 (5)
JP Morgan Chase bid 5yr 52 52 52 45 45 (7)
offer 5yr 59 59 59 55 55 (4)
Lehman Brothers bid 5yr 63 63 63 62 62 (1)
offer 5yr 70 70 70 70 70 0
MBNA Corp bid 5yr 125 125 125 122 122 (3)
offer 5yr 140 140 140 130 130 (10)
Merrill Lynch bid 5yr 65 62 62 60 60 (5)
offer 5yr 75 70 70 68 68 (7)
Morgan Stanley DW bid 5yr 38 40 40 38 38 0
offer 5yr 45 48 48 45 45 0
Comm AOL Time Warner bid 5yr 135 145 140 130 130 (5)
offer 5yr 145 165 158 145 140 (5)
AT&T bid 5yr 205 235 220 200 200 (5)
offer 5yr 220 260 250 220 220 0
Disney bid 5yr 65 65 65 60 60 (5)
offer 5yr 80 80 80 75 75 (5)
Sprint bid 5yr 280 280 280 280 250 (30)
offer 5yr 340 340 340 310 310 (30)
Verizon Global bid 5yr 100 110 110 100 100 0
offer 5yr 115 125 125 120 120 5
Viacom bid 5yr 60 65 65 65 60 0
offer 5yr 80 85 85 85 70 (10)
Worldcom bid 5yr 825 800 700 700 700 (125)
offer 5yr 925 900 840 775 750 (175)
Energy American Electric Power bid 5yr 100 100 110 110 110 10
offer 5yr 130 130 125 125 125 (5)
Duke Capital bid 5yr 65 65 65 65 65 0
offer 5yr 80 80 80 80 80 0
El Paso Corp bid 5yr 190 190 190 190 190 0
offer 5yr 220 220 220 220 220 0
Oneok bid 5yr 100 100 100 100 100 0
offer 5yr 150 150 150 150 150 0
Williams Cos. bid 5yr 290 290 290 290 290 0
Retailers Eastman Kodak bid 5yr 135 135 135 125 125 (10)
offer 5yr 150 150 150 140 140 (10)
Federated Department Stores bid 5yr 70 70 70 65 65 (5)
offer 5yr 80 80 80 75 75 (5)
Neiman-Marcus bid 5yr 85 85 95 95 95 10
offer 5yr 100 100 115 115 115 15
Nordstrom bid 5yr 80 80 80 80 80 0
offer 5yr 100 100 100 100 100 0
Sears Acceptance bid 5yr 65 65 70 70 70 5
offer 5yr 75 75 80 80 80 5
Toys R Us bid 5yr 300 300 300 280 280 (20)
offer 5yr 340 340 340 320 320 (20)
Technology Compaq Computer bid 5yr 110 110 110 110 110 0
offer 5yr 125 125 125 125 125 0
IBM bid 5yr 50 50 45 45 45 (5)
offer 5yr 55 55 55 55 55 0
Motorola bid 5yr 200 200 205 180 180 (20)
offer 5yr 230 230 240 220 220 (10)
Sun Microsystems bid 5yr 115 115 110 105 105 (10)
offer 5yr 145 145 145 120 120 (25)
Hewlett-Packard bid 5yr 95 95 95 95 95 0
offer 5yr 110 110 110 110 110 0
(Continued on next page)
9
Indicative Five-Year Credit Default Swap Spreads

EU
Reference Entity Data 12-Apr-02 15-Apr-02 16-Apr-02 17-Apr-02 18-Apr-02 Delta
EU Akzo Nobel bid 5yr 20 20 20 20 0
offer 5yr 30 30 30 30 0
Alcatel bid 5yr 350 340 310 320 (30)
offer 5yr 380 360 360 360 (20)
Aventis bid 5yr 20 20 20 20 0
offer 5yr 30 30 30 30 0
BASF bid 5yr 20 20 20 20 0
offer 5yr 35 35 35 35 0
BAT bid 5yr 45 45 45 45 0
offer 5yr 55 55 55 55 0
Bayer bid 5yr 35 35 35 35 0
offer 5yr 45 45 45 45 0
BMW bid 5yr 20 20 20 20 0
offer 5yr 35 35 35 35 0
British Tel bid 5yr 70 70 70 70 0
offer 5yr 85 85 85 85 0
Carrefour bid 5yr 22 22 22 22 0
offer 5yr 32 32 32 32 0
Deutsche Tel bid 5yr 145 145 140 140 (5)
offer 5yr 165 165 160 160 (5)
E.ON bid 5yr 24 24 24 24 0
offer 5yr 34 34 34 34 0
Endesa bid 5yr 34 34 34 34 0
offer 5yr 44 44 44 44 0
Enel bid 5yr 23 23 23 23 0
offer 5yr 40 40 40 40 0
Ericsson bid 5yr 340 340 310 330 (10)
offer 5yr 370 370 350 360 (10)
Fiat bid 5yr 230 230 230 230 0
offer 5yr 260 260 260 260 0
France Tel bid 5yr 230 230 230 230 0
offer 5yr 250 250 250 250 0
Iberdrola bid 5yr 30 30 30 30 0
offer 5yr 40 40 40 40 0
Kingfisher bid 5yr 40 40 40 40 0
offer 5yr 50 50 50 50 0
KPN bid 5yr 145 145 145 145 0
offer 5yr 175 175 175 175 0
Lafarge bid 5yr 55 55 55 55 0
offer 5yr 70 70 70 70 0
Marks & Spencer bid 5yr 35 35 35 35 0
offer 5yr 48 48 48 48 0
Nokia bid 5yr 45 45 45 45 0
offer 5yr 60 60 60 60 0
Repsol YPF bid 5yr 240 240 240 240 0
offer 5yr 270 270 270 270 0
Rhodia bid 5yr 240 250 250 250 10
offer 5yr 300 300 300 300 0
Royal Ahold bid 5yr 45 45 45 45 0
offer 5yr 60 60 60 60 0
RWE bid 5yr 30 30 30 30 0
offer 5yr 45 45 45 45 0
Sainsbury bid 5yr 25 25 25 25 0
offer 5yr 35 35 35 35 0
Siemens bid 5yr 35 35 35 35 0
offer 5yr 50 50 50 50 0
Telefonica bid 5yr 60 65 65 65 5
offer 5yr 70 75 75 75 5
Usinor bid 5yr 80 80 80 80 0
offer 5yr 100 110 110 110 10
Vivendi Universal bid 5yr 170 190 190 190 20
offer 5yr 190 210 210 210 20
VNU bid 5yr 80 80 80 80 0
offer 5yr 100 100 100 100 0
Vodafone bid 5yr 55 65 65 60 5
offer 5yr 70 75 75 70 0
Volvo bid 5yr 54 54 54 54 0
offer 5yr 64 64 64 64 0
VW bid 5yr 29 29 29 29 0
offer 5yr 35 35 35 35 0
Source: Banc of America Securities.

10
CDO Base Case ROE Barometers

45.0
40.0
35.0
30.0
Base Case Equity IRR (%)
25.0
20.0
15.0
10.0
5.0
0.0
1/5/01
2/5/01
3/5/01
4/5/01
5/5/01
6/5/01
7/5/01
8/5/01
9/5/01
10/5/01
11/5/01
12/5/01
1/5/02
2/5/02
3/5/02
4/5/02
HY Bonds (2.0% CADR) HY Loans (1.5% CADR)
IG Corporates(0.25% CADR) Multi-Sector (0.25% CADR)
CADR = Constant Annual Default Rate.
CDO ROE Barometer, as of April 12, 2002 (Percent)
ROE Barometer HY Bond a HY Loan b IG Corporate c Multi-Sector d

Current Week
Base case 18.3 15.4 20.1 18.6
Stressed case 8.3 10.9 8.9 11.1
One Month Average

Base case 18.4 16.6 19.6 20.3
Stressed case 8.4 12.1 8.3 12.8
2001 Average Pre 9-11

Base case 24.4 18.0 14.9 19.5
Stressed case 14.4 13.6 3.6 12.0
Funding Gap (Current Week) 4.24 2.84 1.58 1.78
Funding Mix
AAA Notes 70.0 74.0 90.0 85.0
BBB Notes 18.0 16.0 6.0 10.0
Equity 12.0 10.0 4.0 5.0
Assumptions
CADR-base case 2.00 1.50 0.25 0.25
CADR- stressed case 4.00 3.00 1.00 1.00
Recovery Rate 0.40 0.70 0.40 0.50
Ongoing Annual Fees 0.60 0.60 0.40 0.50
Amortiz. Issuance Exp. 0.25 0.25 0.23 0.23
a
50% BB and 50% B HY bonds (BAS Large Cap Index)
b
100% BB/BB– institutional loans (S&P/Portfolio Management Data)
c
95% BBB corporates and 5% BB corporates (BAS Broad Market Index & Large Cap Index)
d
20% BBB HEQ, 10% BBB Equipment, 20% BBB CDOs, 10% BBB CMBS, 10% BBB– CMBS,
10% BB CMBS, 10% BBB RMBS, 10% BBB Corporates.
11
CDO — Recent Primary Issuance

Date Avg
Deal Type Offered Issuer Manager/Underwriter Collateral Class Size Life Moody's S&P Fitch Pricing
Cash – 3/7/02 Crest 2002-1 Structured 60% REIT debt, A $325.0 7.7 Aaa AAA AAA 3mL + 47
Multisector Credit Partners 40% CMBS, B 90.0 9.9 A3 A– A– 3mL + 140
Wachovia Securities WARF: 858 C 35.0 10.2 BBB BBB 3mL + 240
Diversity Score: 8 Pref. Shares 50.0
$500.0
Synthetic – 3/11/02 Maple VIII RBC 100 IG CDS, A $890.3

IG Corps 77% North American & B 60.0
23% European, C 14.0
D-score: 57 D ¥1,000
Equity 24.5
1,000.0
Cash – 3/13/02 ZING IV Zais Group CDOs A1 $535.0 9.6 Aaa AAA L + 40 (wrap), L + 50
Multisector DBAB A–2A 34.0 11.8 Aa3 AA– L + 80
A–2B 12.0 11.8 Aa3 A T + 170, yield 6.96%
B–1 40.0 12 A3 A– L + 150
B–2 32.0 12 A3 A– T + 235, yield 7.61%
C 73.3
$726.3
Cash – 3/14/02 Katonah III CLO Katonah Capital 85% min loans, A $302.0 7.6 Aaa AAA 3mL + 44
HY Loans CSFB 15% max HY bonds B–1 17.0 9.3 A3 A– 3mL + 150
WARF: B1 B–2 23.0 9.3 A3 A– 7.52%
C-1 13.0 9.6 Baa2 BBB 3mL + 240
C-2 4.0 9.6 Baa2 BBB 8.35%
D-1 12.0 9.8 Ba2 BB 3mL + 725
D-2 2.5 9.8 Ba2 BB 13.10%
Equity 32.5
$406.0
Cash – 3/15/02 Samurai CLO Tokyo Star Bank SME Loans to 180 A ¥3,600.0 JPYIRS + 45
Balance Sheet BNP Paribas small and 7 med. B 500.0 JPYIRS + 150
sized enterprises in Tokyo ¥4,100.0
Cash – 3/15/02 Triple One UFJ Bank JPY51.2 bn in private ¥49.2

HY Bonds Funding Ltd. 1 placement bonds ¥49.2
Cash – 3/15/02 Falcon Asset- Gulf International Bank ABS, CMBS, RMBS, A1 €251.0 6.8 Aaa AAA E + 50
Multisector Backed CDO 1 Bear Stearns European CDOs; A2 28.0 7.5 Aa2 E + 80
WARF: 550; B 16.0 7.5 Baa2 E + 225
Div. Score: 550 Equity 12.0
€307.0
Synthetic – 3/18/02 Promise I 2002-1 IKB Deutsche Industriebank SME loans Super Senior €3,200.0
Bal. Sheet Deutsche Bank (KfW's Mittelstand A+ 25.0 Aaa AAA AAA
program) A 91.3 Aaa AAA AAA 3mE + 32
B 60.2 Aa2 AA AA 3mE + 55
C 45.7 A2 A A 3mE + 75
D 51.1 Baa2 BBB BBB 3mE + 170
E 11.5 Ba2 BB BB 3mE + 440
MS 25.0
JS 109.5
€3,619.2
Cash – 3/19/02 Credico Funding Srl ICCREA Italian Co-operative A €742.8 5.7 Aaa AAA 3mE + 23
IG Corps CDC Ixis, SG bank senior debt B 26.7 5.7 AAA 3mE + 33 (retained)
obligations of ICCREA C 26.7 5.7 AA 3mE + 38 (retained)
D 44.5 5.7 A 3mE + 50
E 22.2 5.7 BBB 3mE + 120
Junior 26.7 5.7
€889.6
Cash – 3/19/02 Euromax II MBS SA CIBC World Markets IG CMBS & RMBS A €162.3 AAA 6mE + 38
Multisector B 11.9 A 6mE + 78
C €23.8
€197.9
Cash – 3/20/02 PRETSL-5 First Tennessee Trust Preferred Senior $312.0 Aaa AAA 3mL + 100, 3mL + 80 (wrap)
TruPS Securities Subs 201.0 A3 A– 3mL + 210@99 11/32, yld L + 215
$513.0
Synthetic – 3/21/02 Promise A 2002-1 HypoVereinsbank SME loans Super Senior €1,440.0
Bal. Sheet (KfW's Mittelstand A+ 0.3 Aaa AAA
program) A 64.7 2.2 Aaa AAA 3mE + 30
B 11.0 2.2 Aa1 AA 3mE + 46
C 8.7 2.2 Aa3 A 3mE + 65
D 18.5 2.2 A2 BBB 3mE + 142
E 35.6 2.2 Ba2 BB 3mE + 425
F 11.8 B Privately placed
G 27.5 Retained
€1,618.0
12
CDO — Recent Primary Issuance

(Continued)
Date Avg
Deal Type Offered Issuer Manager/Underwriter Collateral Class Size Life Moody's S&P Fitch Pricing
Cash – 3/26/02 MM Community Sandler O'Neill Trust Preferred A $310.0 30 Aaa AAA AAA 6mL + 100
TruPS Funding III SSB Securities B 177.0 30 A3 A– 6mL + 205
C 52.5
$539.5
Cash – 3/27/02 Lafayette BAREP Asset Mgt. 100% sovereigns A $145.1 7.7 Aaa AAA 6mL + 54
EM Debt Sovereign CDO JPMorgan Chase B 13.0 9.5 A3 A– 6mL + 200
C 13.0 9.5 Baa2 BBB 6mL + 300
Sub. 45.5
$216.6
Cash – 3/28/02 Carlyle HY Carlyle Partners 90% leveraged loans, A1 $215.3 7.45 Aaa AAA 3mL + 44
HY Loans Partners IV Wachovia 10% HY Bonds, A1 130.0 7.45 Aaa AAA 3mL + 44
WAR 'B1-B2' A3 40.0 7.45 Aaa AAA 3mL + 44
B 10.0 7.45 A3 A– Swaps + 150 @ 99.99, yld 7.581%
C1 24.5 7.45 Baa1 BBB+ 3mL + 250
C2 22.0 7.45 Baa1 BBB+ 3mL + 223 @ 98.0425
PS 26.0
$467.8
Cash – 4/1/02 Newcastle Newcastle 57% CMBS, I $372.0 8.4 Aaa AAA 3mL + 55
Multisector CDO I (formerly Fortress) 25% REIT debt, II 38.0 10 A3 A S + 160 @ 99.98, yld 7.665%
MSDW 18% ABS/MBS III 34.0 10 Baa2 BBB S + 240 @ 99.95, yld. 8.465%
IV 19.0 10 Ba2 BB Not offered
PS 37.0
$500.0
Cash – 4/1/02 Solstice ABS Rabobank 35% SF CDOs, A1 $237.0 8.6 Aaa AAA 6mL + 50, cpn 46.3 dm
Multisector CDO II CSFB 30% HY bond & A2 96.0 8.6 Aaa AAA 6mL + 50
loan CDOs, B 66.5 10 Aa2 AA N/A
25% ABS/RMBS/CMBS, C 22.0 9.8 Baa2 BBB 6mL + 260, cpn 250 dm
5% EM PS 21.0 Ba3
$442.5
Cash – 4/4/02 Clearwater Atlantic Asset Mgt. 90% IG corporates, A–1A $329.0 8.5 Aaa AAA 6mL + 42
IG Corps Funding 2002-A CSFB 10% HY bonds A–1B 25.0 8.5 Aaa AAA 6mL + 49
A–2 18.5 10 Aa2 AA 6mL + 80
A–3 8.0 10.2 A3 A– 7.62%
B–1 6.0 10.5 Baa2 BBB 6mL + 350
B–2 3.4 10.5 Baa2 BBB 9.42%
PS 13.0
$402.9 3.23%
Synthetic – 4/8/02 EPOCH 2002-1 Morgan Stanley 100% IG credits, 95% US, I $40.0 Aaa AAA 3mL + 60
IG Corps WARF: Baa1 II 22.0 Aa2 AA 3mL + 100
III 10.0 A2 A 3mL + 165
IV 15.0 Baa2 BBB 3mL + 350
V 12.0 Ba2 BB 3mL + 850
Equity 23.0
$122.0
Cash – 4/10/02 G-Star SF CDO GMAC 60% CMBS, 40% IG REIT A–1 $162.0 0.5 P-1 A1+ F1+ L+6
Multisector Goldman Sachs A–2 72.9 7.72 Aaa AAA AAA L + 55
B 23.0 8.25 A3 A– A– L + 140
B(fixed) 27.2 8.25 A3 A– A– S + 148, yld 7.18%
C 16.2 7.73 Ba1 BB+ BB+ S + 637.5, yld 11.317%
D 22.7
$323.9
Cash – 4/11/02 Promus I BV Intermediate Capital Sr. sec loans, A–1 €20.0 9.5 AAA 6mE+ 55
HY Loans Managers Ltd. mezz. Obligations D-2 3.2 10 BBB 6mE + 245
JP Morgan HY debt. €23.2
Cash - 4/16/02 San Miguel CDO PIMCO IG Corporates, WARF: 610 A $193.9 9 Aaa AAA 6mL + 43
IG Corps Lehman (Baa3) B 11.2 10.2 Aa2 AA 6mL + 80
C 11.7 10.5 Baa1 BBB 6mL + 250
PS 13.3
$230.0
Cash – 4/16/02 Ayt. 9 FT-Pymes ICO III ACF-CECA SME loans originated by 9 T1 €28.6 Aaa 6mE + 3
HY Loans Spanish savings banks F1 €7.2 Aa3 6mE + 9
T2 €114.6 Aaa 6mE + 6
F2 €28.7 Aa3 6mE + 45
B €10.4 Ba3 6mE + 50
€189.5
13
CDO New Issue Pipeline

US
Size
Deal (MM) Type Collateral Dealer Manager
Aladdin CLO $500 Loans Leveraged loans Mizuho Aladdin Capital
Ares IV CLO 400 Loans Leveraged loans Lehman Ares Asset Management
Blackstone CLO Loans Loans CIBC, JPMorgan Blackstone Group
Bryn Mawr CLO 300 Loans B1/B2 rated leveraged bank loans BAS Deerfield Capital
Capital Source CDO 200 Loans Middle market loans Wachovia Capital Source
Centre Pacific CDO 400 Loans 80% loans, 20% bonds Goldman Sachs Centre Pacific
CLAWS CDO 350 Loans Loans Bear Stearns Bear Stearns Asset Management
C-Squared CDO 400 Loans Leveraged loans JP Morgan TCW
DC Funding II 405 Loans Leveraged loans Bear Stearns Denali Capital
Dryden CLO 400 Loans Leveraged loans Salomon Prudential Investments
Eaton Vance CLO - V 511 Loans Loans Bear Stearns Eaton Vance
Franklin CLO III 407 Loans 95% sr. secured bank loans, WARF: 2350 test, 2100 initial ML Franklin Templeton
GoldenTree Loan Opportunity Fund Ltd. 400 Loans 70-100% senior secured bank loans, WARF: 2800 target Deutsche Bank GoldenTree
Greystone CLO 350 Loans 100% bank loans Deutsche Bank Stein Roe Farnham
Hewetts Island CLO 300 Loans 80% minimum senior secured loans, 20% max. HY bonds Links Securities Cypress Tree Investments
Mariner CDO 2002 Ltd. 409 Loans 95% sr. secured bank loans, 5% mezzanine loans Citibank, SSB Antares (Mass Mutual)
Mondrian CDO 400 Loans Loans CIBCWM Four Corners Capital
Oak Hill CLO Loans Leveraged loans DBAB Oak Hill
Riverside CBO (on hold) 300 Loans 80% loans, 20% bonds Bear Stearns Invesco HY Investment Management
Wrigley CDO 430 Loans Leveraged loans Morgan Stanley PIMCO
West Loop CLO-I 400 Loans 60% Sr. Sec Loans, 20% mid-mkt loans, 20% ABS lending CIBCW Heller Financial Asset Mgmt
$7,262
Phoenix - Mistic IG CBO $750 IG Corporates approx. 90% IG Corporates, max. 20% HY bonds; WARF: 477 ('Baa2/Baa3) UBS Warburg Phoenix Investments
Prudential CBO 450 IG Corporates IG corporate bonds CSFB Prudential Investments
$1,200
BSC Amortizing HY CBO 2001-1 (on hold) $400 HY Bonds HY Bonds (BB/BB– WAR) Bear Stearns Bear Stearns Asset Management
Franklin HY CBO HY Bonds HY Bonds Franklin
Invesco CLO 330 HY Bonds HY Bonds, half domestic and half European-originated Lehman Invesco
Liberty Square CDO III (on hold) 250 HY Bonds 100% HY Bonds, WARF "Ba3/BB-" Lehman Wellington Asset Management
Lord Abbett CDO 300 HY Bonds B1-B2 WAR ML Lord Abbett
Mt. Mitchell II CDO 300 HY Bonds 80% HY Bonds, 20% Leveraged Loans BAS White Ridge Investment Advisors LLC
Pacholder CBO HY Bonds HY Bonds Banc One Pacholder Associates
PIMCO EM CBO EM EM Debt DBAB PIMCO
Special Value Absolute Return Fund 1,000 MV- HY Bonds 30% distressed debt, 40% BB/B bonds, 20% mezz., 10% equity MSDW Special Value Investment Management
TCW GEM - VII 300 EM 66.6% sov debt, 24.5% EM corporates, 4% ABS, 5% HY bonds; WAR: 'Ba3' SG Cowen Securities TCW
$2,880
ACA SF CDO $350 Multi-Sector Structured Finance CSFB ACA Management
*AJAX II Multi-Sector CMBS/REIT Morgan Stanley
Alliance Global CDO Ltd. 250 Multi-Sector 70% sr sec loans/20% EMG/10% hy/5% struc fin secs Lehman
Arroyo II CDO 400 Multi-Sector ABS DBAB WAMCO
Aspen Funding CDO 200 Multi-Sector 15%B&C mtgs, 15%Res. A, 11.9%MH, 7.3%franchise, 6.5%struc.settlements Bear Stearns
*Blackrock CDO Multi-Sector CMBS/REIT DBAB Blackrock
CABS III SF CDO 275 Multi-Sector ABS CSFB Structured Finance Advisors
Coast III CDO of CDOs 300 Multi-Sector CDOs Lehman Coast Asset Management
Duke III CDO 500 Multi-Sector 58% ABS/RMBS, 40% CMBS, 7% REIT, WARF: 450 CSFB Ellington Management
*G-Force III Multi-Sector CMBS/REIT Morgan Stanley GMAC
Independence III CDO 300 Multi-Sector ABS/MBS BAS Independence Fixed Income LLC
Oceanview Investment Grade CDO 400 Multi-Sector 40% IG Corps, 40% ABS, 20% CDOs, WAR: "BBB" UBS Warburg Deerfield Capital
Orix CDO 850 Multi-Sector CMBS, HY debt Morgan Stanley Orix Capital Markets
Ruby CDO 2002 Ltd 117 Multi-Sector BBB CDO paper Bear Stearns
Solstice III Multi-Sector CMBS Rabobank
South Coast SF CDO II Multi-Sector IG MBS, ABS SSB TCW
TIAA Real Estate CDO 500 Multi-Sector 66.6% CMBS/REIT, 33.3% CDOs, 78% inv. Grade, 22% 'BB'-rated Morgan Stanley Teachers
Vanderbilt SF CDO 300 Multi-Sector RMBS, ABS CSFB Vanderbilt Capital Advisors
$4,742
Bear Stearns CFO Alternative Hedge funds Bear Stearns
Coast CFO $400 Alternative Hedge funds ML Coast Asset Management
Concert Guaranteed Ltd. 200 Alternative Hedge funds Ferrell Capital
CSAM CFO Alternative Hedge funds CSFB Credit Suisse Asset Management
Deutsche Bank CFO Alternative Hedge funds DBAB
Diversified Strategies CFO 500 Alternative Fund of funds CSFB Investcorp.
GSAM CFO Alternative Hedge funds Goldman Sachs GSAM
Grosvenor CDO 300 Alternative Hedge funds MSDW Grosvenor Capital Management
Man-Glenwood Alt. Strategies I CFO 500 Alternative 20-30 hedge funds-of-funds JP Morgan Man-Glenwood Capital
Prime Edge II CFO Alternative private equity DBAB
UBS O'Connor CFO Alternative Fund of funds UBS Warburg UBS O'Connor
$1,900
US Cash CDOs $17,984
ACA CDS Funding I $1,000 Synthetic IG CDS, expected WAR: 'Baa1' UBS Warburg ACA Management LLC
AMBER CDO 1,000 Synthetic IG corporates JP Morgan
Ashmore EM CDO Synthetic EM sovereigns Ashmore
Bear Stearns CDO 500 Synthetic 100 IG credits, WAR: BBB-/BB+ Bear Stearns
Bennington Finance Ltd 750 Synthetic IG corporates, "Baa1" WAR BNP Paribas BNP Paribas
Craigie St. Funding I 1,000 Synthetic IG Corporates Salomon TCW
Deerfield CDO 1,000 Synthetic IG reference pool MSDW Deerfield Capital
DISC 2001-1 1,000 Synthetic CDS on IG credits DKW
General Re CDO 1,000 Synthetic IG CDS General Re.
Horizon 2002-A 7,300 Synthetic CDS referencing Moody's index of 2088 corp. entities, WAR: 'Baa2', D-score: 200 JP Morgan
Hy Syn 2002-1 400 Synthetic 40 high yield credits, WAR: 'Ba2/Ba3', D-score: 27 Goldman Sachs
Imperial II Balance Sheet CLO 1,000 Synthetic 75% North American obligors, 40% Canadian obligors, 25 EU domiciled obligors CIBC CIBC
ING Investment Grade Synthetic 450 Synthetic 90 reference entities, "Baa1" portfolio ING
Maple - VIII 1,002 Synthetic IG obligations -80% N. America, 17% European RBC Dominion Sec.
MINTS IG CBO Synthetic 75 to 125 IG credits, WAR: 'Baa1', D-score: 50 Merrill Lynch MBIA Capital Management
Newark CDO BV 1,416 Synthetic Static pool, ANTS HY Bonds portfolio, 75% US/25% European Goldman Sachs Abbey National
Petra 3,000 Synthetic 500 names, Max. WARF: 378, 61% US, 30% Europe, 9% Asia DrKW
SALS 2001-2 1,000 Synthetic static pool of 100 IG CDS with WAR of A3/Baa1 UBSW Global Credit Derivative Trading
Sprint Synthetic CDO 1,500 Synthetic IG Corp loans, Baa1 Rating Factor Lehman
Stuyvesant IV CDO 500 Synthetic CDOs Rabobank
Taurus Synthetic CDO 1,230 Synthetic IG CDS TD Securities
$26,048
Total US CDOs $44,032
14
CDO New Issue Pipeline

Europe/Asia
Size
Deal (MM) Type Collateral Dealer Manager
European/Asian CDO New Issuance:
AIG Mezzvest CDO Loans Mezzanine loans Merrill Lynch AIG Mezzvest
*Argon Capital L1500 Synthetic GBP1.5bn IG references Merrill Lynch Nationwide Building Society
Barclays Capital Asia CDO Synthetic $1bln portfolio referenced to liquid Asian credits Barclays Barclays Capital Asia
Beethoven CDO €483 Bonds 88% floating rate investment grade sec., 25% synthetic securities DBAB Deutsche Asset Management
Brooklands Euro RLN 2002-1 €1,000 Synthetic Static pool of IG entities Schroder SSB UBS Principal Finance Group
BNP Paribas $1,200 Synthetic Lehman BNP Paribas
Cheyne IG CDO $4,400 Synthetic G CDS, 59% N. America, 38% European, 3% Asia, WARF: 275 max, D score: 70 m MSDW Cheyne Capital Management
Cidneo Finance PLC €225 ABS International bonds, credit derivatives, ABS BNP Paribas Banca Lombardo
Copernicus Euro CDO II €350 Bonds HY bonds and loans ING Capital Advisors
Deutsche Bank BS CDO $5,000 Synthetic pool of corporate loans on DB's balance sheet DBAB Deutsche Bank
Deutsche Bank 24 CDO Synthetic RMBS DBAB Deutsche Bank 24
Dolmer ABS CDO Multi-Sector ABS Dolmer Securities
*Duchess II €750 Loans 60-70% leveraged loans, 15-20% mezzanine debt, 15-20% bonds Duke Street Capital
Eurostoxx II Synthetic pool based on 50 biggest capitalized European companies SG SG
FTPYME Bancaja 1 - TDA €592 Loans 4916 SME loans by Bancaja in Valencia and Castellon JP Morgan Caja de Ahorro de Valencia, Castellon y Alicante
Geldilux 2002-1 €3,000 Loans Loans HVB HypoVereinsbank
Green PLC balance sheet CLO €2,600 Synthetic Revolving credit facilities, term loans, guarantees, CDS, back-up facilities DBAB SanpaoloImi
HypoVereinsbank CFO Hedge Funds Hedge Funds HVB HypoVereinsbank
ING Barings $450 Synthetic ING Barings
Intercontinental CLO €400 Loans 70% sr. secured loans, 30% HY bonds DBAB PIMCO
Invesco European CDO I €300 Loans 40% US sr sec loans, 35% Euro sr sec loans, 15% mezz loans, 10% HY Bonds Lehman Invesco
KTCGF $250 HY Bonds Bonds CSFB KTCGF
Leveraged Fin. Europe Capital One €315 Loans 70% Leveraged Loans, 20% Mezz. Loans, 10% HY Bonds MSDW BNP Paribas
Lion Tower CDO €300 Loans European Leveraged Loans Merrill Lynch Groupama S.A.
London Wall CLO €300 Synthetic EUR3 billion portfolio DBAB DBAB
Lusitano No. 1 €1,146 Bonds 57% Eurobonds, 43% Portuguese bonds (BBB WAR) DBAB, ESSI, ML Banca Espirito Santo de Investimento
Marianne CDO €1,000 Synthetic BNP Paribas
Marylebone Road - III €1,000 Synthetic Corporate bonds DBAB Abbey National
Merrill Lynch managed CDO €750 Synthetic 80% European, 20% US names Merrill Lynch
MORE Europe III $800 Synthetic 90 investment grade entities, 70% European, 30% N. American SG SG
*MSDW Synthetic CDO ¥91,000 Synthetic 91 Japanese companies of 27 sectors MSDW
Pei synthetic CDO €840 Synthetic JP Morgan
Prater 2002-1 €761 Synthetic European ABS Credits, WAR: 'A-' WestLB Erste Bank
Priamo Finance CLO €375 Loans Loans ABN Amro
Project Pacific CDO $250 Multi-Sector CDO paper TD Securities Softbank of Japan
Real Value I 2002-1 €960 Synthetic 45 commercial property loans to 39 obligors WestLB Westdeutsche Immobilienbank
Repon 16 $3,000 Synthetic DBAB
RMF Euro CDO I €300 Bonds 50% HY Bonds, 40% sr. sec loans, 10% mezz loans Goldman Sachs RMF
Robeco CDO IV €250 Synthetic CDS, IG credits, ABS DBAB Robeco Capital Markets
SCORE CDO €300 IG Corp 60 Euro entities, 90% European, 10% US, WAR 'A3/Baa1' SG
Standard Asset Management €400 HY Bonds Distressed bonds and loans Standard Asset Management
Symphonix 2001 $454 HY Bonds HY Bonds, Min. WARF: 2273, Max. WARF: 2500, Diversity Score: 41 Merrill Lynch Dexia Asset Management
Tellaro CDO ¥100,000 Synthetic Japanese companies, JGB JP Morgan Tellaro Company
Tokyo Mitsubishi International $1,000 Synthetic $1bln portfolio of Bank of Tokyo-Mitsubishi's loans Tokyo Mitsubishi Int'l. Bank of Tokyo Mitsubishi
Torus 1 Ltd. ¥4,950 Synthetic TD Securities
WestLB Synthetic CLO Synthetic Loans to WestLB's corporate clients WestLB WestLB
Westpac CDO $1,000 Synthetic Aussie, NZ, European, Asian credits Westpac Westpac
White Oak CDO $1,000 Synthetic mostly static pool of ABS Barclays Barclays Risk Management
*Indicates issues added to forward calendar during past week.

**Although many transactions target a mix of bonds and loans, the CDO is categorized according to its predominant asset class.
15
Visible Synthetic CDO Supply
2002 Visible Tranched Portfolio Default Swap Issuance

(US$ Millions)
Month Name Originator Notional Notes Sector Collateral

Apr EPOCH 2002-1 MSDW $1,000 $100 IG 100 IG Corp CDS (95% US, Baa1 WARF)
Mar Maple VIII RBC 1,000 86 IG 100 IG Corp CDS (77% NA / 23% Eur)
Feb CDO Master Investments No. 3 BNP Paribas 2,500 150 MS 75% IG Corp; 25% AAA ABS
Feb Serena Finance II BNP Paribas 1,368 68 IG 91 Japanese credits
Feb Disc 2002-1 Dresdner Bank 980 98 IG IG Corp CDS
Feb Shabeele/Douze JPChase 513 51 IG IG Corp CDS
Jan ACA CDS 2001-1 ACA/Commerzbk 1,000 — IG IG Corporates
Jan Spirit Finance I Penstock Partners 1,340 134 IG 134 IG Corp CDS
Total $9,701 $686
2002 Visible Independently Managed Synthetic Issuance

(US$ Millions)
Month Name Manager Underwriter Notional Notes Sector Collateral

Mar Chambers St. II Clinton Group Bear $1,000 $87 IG IG Corporates
Feb Jazz CDO 1 BV AXA Invest. Advisors Deutsche 1,350 189 IG IG Corporates
Jan GIA Synthetic Glob. Invest. Advisors Bear 1,000 96 IG 100 IG Corp CDS
Total $3,350 $372
2002 Visible Synthetic Balance Sheet CLO Issuance

(US$ Millions)
Month Name Sponsor Underwriter Notional Notes Sector Collateral

Mar Promise I 2002-1 KFW Deutsche $3,240 $234 Loans IKB German SME loans
Mar Smart Series 2002-1 Macquarie Bank Macquarie Bank 524 79 Loans Auto Leases
Mar Promise A 2002-1 KFW HypoVereinsbank 1,456 125 Loans 3,147 HVB / VuW SME loans
Feb Provide Blue 2002-1 BHW Bausparkasse SocGen 1,116 112 MS Residential Mortgages
Feb Prater 2002-1 Erste Bank WestLB 686 0 MS Structured Finance
Feb Cordusio CLO Unicredito Deutsche 1,800 210 Loans 119 IG credits in Europe, NA & Japan
Total $8,822 $759
Note: All foreign currencies translated back to US$; visible supply represents 70–75% of real supply in our estimates.
Sources: Creditflux, IFR Markets, MCM, Fitch, Moody’s, S&P and Banc of America Securities LLC.
16
Ratings Assignments
Ratings Actions — Downgrades

Rating Rating
Downgrade Issue Deal Before After
Date Date Issue Name Portfolio Manager Type Class Size Change Change Agency
4/4/02 1997 Putnam CBO II Ltd. The Putnam Advisory Co. CBO A 256.0 Aa2 Aa3 Moody's
4/4/02 1999 C*Star 1999-1 Citibank CLO C B+ CC Fitch
4/4/02 1998 American General CBO 1998-1 American General Investment Mgt. CBO B-1 50.0 BBB– BB+ Fitch
B-2 25.0 BB– B+ Fitch
4/4/02 1995 Alliance Global Diversified Holdings, Ltd. Alliance Capital Mgt. CBO A 115.0 Aa2 A1 Moody's
B 15.0 Baa2 B3 Moody's
4/5/02 1999 FMA CBO Funding II, LP Financial Mgt. Advisors CBO A 251.0 Aaa Aa3 Moody's
B 47.0 A1 Baa3 Moody's
C-1 5.0 Baa3 Caa1 Moody's
C-2 27.0 Baa3 Caa1 Moody's
D 18.0 Ba3 Ca Moody's
4/5/02 1999 Triumph Capital CBO I, Ltd. Alliance Capital Mgt. CBO B-1 35.0 Baa3 B2 Moody's
B-2 22.0 Baa3 B2 Moody's
C-1 13.0 B1 Caa3 Moody's
C-2 3.0 B1 Caa3 Moody's
D 8.0 B3 C Moody's
4/5/02 1997 ML CBO IX Series 1997-AIG-1 Ltd. AIG Global Investment Corp. CBO A 230.5 B3 Caa2 Moody's
4/5/02 1998 ML CLO XIX Sterling Ltd. Sterling Asset Mgt. CLO A-3 54.0 Aa3 A1 Moody's
B-1 22.0 B1 Caa1 Moody's
B-2 25.0 B1 Caa1 Moody's
4/5/02 1999 Scala 2 BCI SpA CBO A €70.9 BBB– BB S&P

C €70.9 BB CCC S&P
4/5/02 Scala 3 BCI SpA CBO A €42.7 BBB BB+ S&P

B €42.7 BB+ BB– S&P
4/5/02 1999 Centennial CBO Ltd. American Express AM CBO III 33.0 Ba2 B3 Moody's
IV 10.0 Caa2 C Moody's
4/5/02 1999 Admiral CBO (Cayman) Ltd. Delaware Investment Advisors CBO B-1 14.0 BBB B– S&P
B-2 25.0 BBB B– S&P
C 16.0 CCC+ CCC– S&P
4/5/02 1997 Rhyno CBO 1997-1 Delaware Corp. CBO A-3 127.0 A– B S&P
4/9/02 1999 Scala 2 BCI SpA CBO A €30.0 Ba1 Ba3 Moody's
B €7.9 Caa1 Caa2 Moody's
C €10.4 Caa2 Ca Moody's
4/9/02 1998 Isles CBO Ltd. American Express AM CBO 2nd priority €62.5 B1 Caa2 Moody's
Sr. Sub €10.0 Caa3 Ca Moody's
4/9/02 1999 Juniper CBO 1999-1 Wellington Management Co. CBO A-1 134.0 AAA A+ S&P
A-2 34.0 AAA BBB+ S&P
A-3A 60.0 BBB– CCC– S&P
A-3B 40.0 BBB– CCC– S&P
4/9/02 1998 Adams Street CBO 1998-1 Scudder Kemper Investments CBO A-2A 155.3 AAA BBB+ Fitch
A-2B 28.7 AAA BBB+ Fitch
A-3 24.0 BBB+ BB Fitch
B 31.0 BB C Fitch
4/9/02 1998 Stellar Funding CBO Northstar Investment Management CBO A-3 186.2 A– CCC Fitch
A-4 48.0 B– CC Fitch
4/9/02 1997 CypressTree Investment Partners I, Ltd. CypressTree Investment Management CLO Sub. 57.5 BBB– B– Fitch
4/9/02 Repon 14 Deutsche Bank CDO A B+ B– S&P
4/10/02 1998 Fortwirth CDO Ltd. (formerly Aeltus CBO IV) Aeltus Investment Management CBO B 34.7 Ba2 B3 Moody's
4/12/02 1999 C*Star 1999-1 Citibank C B CCC– S&P
4/12/02 1998 Magnus Funding Ltd. Shenkman Capital Management CBO A 202.0 A1 Ba3 Moody's
B 34.5 Ba3 C Moody's
C 28.0 Caa2 C Moody's
4/15/02 1999 MINCS - Pilgrim I Ltd. 2nd. Priority 66.0 BBB CC Fitch
4/16/02 1998 Nantucket CBO, Ltd. PIMCO CBO Sr. Sec. 57.0 Aa3 A1 Moody's
2nd. Priority 15.0 B3 Ca Moody's
4/17/02 2001 Helix Capital (Netherlands) BV 2001-9 BAS BBB BBB– Fitch
4/18/02 1999 Cedar CBO Ltd. American Express AM CBO II 46.0 Aa3 A1 Moody's
III 52.0 B1 B2 Moody's
IV 20.0 Ca C Moody's
4/18/02 2000 South Street CBO 2000-1 Colonial Advisory Services CBO B-2 4.9 Ba3 Caa1 Moody's
Sources: Bloomberg and Banc of America Securities LLC.
17
Ratings Actions — Upgrades

Rating Rating
Upgrade Deal Before After
Date Issue Date Issue Name Portfolio Manager Type Class Size Change Change Agency
1/7/02 1999 Diversified REIT Trust 1999-1 Wells Fargo Bank ABS B 31.1 AA AA+ Fitch
D 41.5 BBB A– Fitch
1/7/02 2000 Diversified REIT Trust 2000-1 Wells Fargo Bank ABS B 18.1 AA AA+ Fitch
C 27.0 A A+ Fitch
D 21.2 BBB BBB+ Fitch
1/24/02 1999 Geldilux 1999-2 HypoVereinsbank CLO C €9.4 A A+ S&P
D €11.3 BBB A+ S&P
E €13.1 BB BBB S&P
2/8/02 1999 Geldilux 1999-2 HypoVereinsbank CLO D €11.3 Baa2 A2 Moody's
E €13.1 Baa3 Ba3 Moody's
2/8/02 1999 Geldilux 1999-2 HypoVereinsbank CLO D €11.3 BBB+ A Fitch
E BB BBB– Fitch
2/14/02 2002 Duchess I CO S.A. Duke St. Capital Mgmt. B €9.0 BB BB+ S&P
3/25/02 1997 Alliance Holdings International Alliance Capital Mgmt. CBO 120.0 Baa2 Baa1 Moody's
3/28/02 Korea Credit Guarantee CBO Ltd. KDB Bank CBO Notes Baa2 A3 Moody's
3/28/02 1997 First Emerging Markets CBO, Ltd. ANZ Emerging Markets CBO Sr Sec. 92.0 A2 A1 Moody's
18
Ratings Actions — Under Review; Affirmations

Deal
Action Date Issue Date Issue Name Portfolio Manager Type Class Size Rating Agency Action
4/3/02 1998 Pacific Life CBO 1998-1 Pacific Life Insurance Co. CBO A-1 AAA S&P Neg. Watch
A-2A AAA S&P Neg. Watch
A-2B AAAr S&P Neg. Watch
A-2C AAA S&P Neg. Watch
A-3 BBB S&P Neg. Watch
4/4/02 1999 C*Star 1999-1 Citibank CLO B A Fitch Affirm
4/4/02 1996 Global Diversified CBO, Ltd. Alliance Capital Mgt. CBO Sr. Sec. 87.5 Aa2 Moody's Neg. Watch
2nd priority 20.4 Baa3 Moody's Neg. Watch
4/4/02 1998 American General CBO 1998-1 American General Invest. Mgt. CBO A-3A 4.0 A– Fitch Affirm
A-3B 15.0 A– Fitch Affirm
4/5/02 1999 Admiral CBO (Cayman) Ltd. Delaware Investment Advisors CBO A-1 171.5 AAA S&P Affirm
A-2 47.5 AA S&P Affirm
4/5/02 1998 Pacific Life CBO 1998-1 Pacific Life Insurance Co. CBO A-1 AAA S&P Neg. Watch
A-2A AAA S&P Neg. Watch
A-2B AAAr S&P Neg. Watch
A-2C AAA S&P Neg. Watch
A-3 BBB S&P Neg. Watch
4/5/02 1997 Rhyno CBO 1997-1 Delaware Corp. CBO A-1 58.0 AAA S&P Affirm
A-2 130.0 AAA S&P Affirm
4/5/02 1999 Centennial CBO Ltd. American Express AM CBO II-A 20.0 Aa3 Moody's Neg. Watch
II-B 14.0 Aa3 Moody's Neg. Watch
4/5/02 1999 Clydesdale CBO I Ltd. NCRAM CBO B 47.0 Baa2 Moody's Neg. Watch
C-1 4.0 Ba3 Moody's Neg. Watch
4/5/02 1999 HarbourView CBO I Ltd. HarbourView Asset CBO B-1 20.0 Baa2 Moody's Neg. Watch
Management B-2 10.0 Baa2 Moody's Neg. Watch
4/9/02 1999 Dresdner RCM Dresdner RCM CBO B-1 30.0 Baa3 Moody's Neg. Watch
Caywood Scholl CBO I Global Investors B-2 18.0 Baa3 Moody's Neg. Watch
4/9/02 1998 Isles CBO Ltd. American Express AM CBO A-1 €30.0 Aa2 Moody's Neg. Watch
A-2 235.0 Aa2 Moody's Neg. Watch
4/9/02 1999 Juniper CBO 1999-1 Wellington Management Co. CBO A-1L 153.0 AAA S&P Affirm
4/9/02 1997 CypressTree Investment CypressTree CLO B-1 100.0 AA Fitch Affirm
Partners I, Ltd. Investment Management B-2 115.6 AA Fitch Affirm
4/12/02 2000 Eurostar I CDO DWS Finanz-Service GmbH A-3 AA Fitch Neg. Watch
B BBB– Fitch Neg. Watch
C B Fitch Neg. Watch
4/12/02 1999 C*Star 1999-1 Citibank A AAA S&P Affirm

B A S&P Neg. Watch
4/12/02 1999 SCM Communications Shenkman Capital CBO A 279.0 Aa2 Moody's Neg. Watch
CBO I Ltd. Management B-1 13.0 Baa2 Moody's Neg. Watch
C 16.0 Ba2 Moody's Neg. Watch
4/15/02 1999 SEQUILS - Pilgrim I Ltd. Sr. Sec. 388.0 AA Fitch Affirm
4/16/02 1998 Shyppco Finance Company LLC MBIA Capital Mgmt. CBO A-2B 123.0 Moody's Neg. Watch
A-2C 55.0 Moody's Neg. Watch
A-3 62.0 Moody's Neg. Watch
4/16/02 1999 ML CBO XXIV Ltd. Fountain Capital Management CBO B 45.0 Baa2 Moody's Neg. Watch
4/17/02 1998 Halyard CBO I Ltd. Ghent Asset Management CBO B 12.7 Baa2 Moody's Neg. Watch
C 12.7 Ba3 Moody's Neg. Watch
4/17/02 1998 Pacific Life CBO 1998-1 Pacific Life Insurance Co. CBO A-2A AAA Fitch Neg. Watch
A-2B AAA Fitch Neg. Watch
A-2C AAA Fitch Neg. Watch
A-3 A– Fitch Neg. Watch
B BB– Fitch Neg. Watch
4/18/02 1999 Cedar CBO Ltd. American Express AM CBO I 230.0 Aaa Moody's Neg. Watch
4/18/02 2000 Caravelle Investment Fund II, LLC Caravelle Investment Advisors MV CDO E 16.5 B2 Moody's Neg. Watch
4/18/02 2000 Eurostar I CDO DWS Finanz-Service GmbH A-1 34.3 Aaa Moody's Neg. Watch
A-2 105.9 Aaa Moody's Neg. Watch
4/18/02 2000 JWS CBO 2000-1 Ltd. J. & W. Seligman & Co. CBO D 23.3 BB– Fitch Neg. Watch

19
Credit Spreads by Rating
Five Year US High Grade Industrial Credit Spreads

12/31/99–4/19/02
(bps over LIBOR)
160
140
120
100
80
60
40
20
0
12/31/99
1/31/00
2/29/00
3/31/00
4/30/00
5/31/00
6/30/00
7/31/00
8/31/00
9/30/00
10/31/00
11/30/00
12/31/00
1/31/01
2/28/01
3/31/01
4/30/01
5/31/01
6/30/01
7/31/01
8/31/01
9/30/01
10/31/01
11/30/01
12/31/01
1/31/02
2/28/02
A BBB 3/31/02
Five Year US High Yield Industrial Credit Spreads

12/31/99–4/19/02
(bps over LIBOR)
1,000
900
800
700
600
500
400
300
200
100
0
12/31/99
1/31/00
2/29/00
3/31/00
4/30/00
5/31/00
6/30/00
7/31/00
8/31/00
9/30/00
10/31/00
11/30/00
12/31/00
1/31/01
2/28/01
3/31/01
4/30/01
5/31/01
6/30/01
7/31/01
8/31/01
9/30/01
10/31/01
11/30/01
12/31/01
1/31/02
2/28/02
3/31/02
BB B
20
Primary CDO Spreads to 3 Month LIBOR by Collateral Type

High Yield Leveraged Investment Grade Multi- Market
Bonds Loans Corporates sector Value
AA Revolver 100
AAA 50 45 48 52 75
AA 88 85 85 90 90
A 155 150 155 150 150
BBB 270 255 325 260 280
BB 750 725 N/A N/A 745
B 1,125
* Wrapped
Recent Structured Credit Strategy Reports

Date Title Author
March 19, 2002 Moody’s Liquidity Assessment Reports Martín González

March 14, 2002 Hedge Fund CDOs: Leveraging Sharpe Ratios Lang Gibson
January 25, 2002 Total Return Swap Primer Martín González
January 18, 2002 2001 CDO Review & 2002 Outlook: Cash & Synthetics Lang Gibson; Erin McCutcheon
January 2, 2002 Global Structured Credit Strategy: 2002 Outlook Lang Gibson; Martín González
December, 2001 Structured Credit Strategy: US Investment Grade Outlook Lang Gibson; Martín González
December, 2001 Structured Credit Strategy: US High Yield Outlook Lang Gibson; Martín González
November 19, 2001 Synthetic Investment Grade Corporate CBOs Lang Gibson
November 15, 2001 Introducing the BAS CDO ROE Barometers Lang Gibson; Erin McCutcheon
November 9, 2001 ISDA on Convertible and Zero Coupon Bond Deliverability Martín González
November 6, 2001 ISDA Approves New Successor Definition Martín González
October 31, 2001 Moody’s Default Forecast: Post-September 11 Update Martín González
October 19, 2001 Impact of Convertible Bond Issuance on the Credit Default Swap Market Martín González
September 26, 2001 Synthetic Multi-Sector CBOs Lang Gibson
August 20, 2001 CDS Pricing Convention: Crib Sheet for Cash Investors Martín González
August 14, 2001 Managing Credit Risk for Nonbank Corporations Lang Gibson
August 9, 2001 Restructuring as a Credit Event Martín González
July 30, 2001 PARTS Primer: Trade Accounts Receivable Martín González
July 25, 2001 Synthetic Credit Portfolio Transactions Lang Gibson
June 14, 2001 Structured Credit Products: First Half 2001 Update Lang Gibson
June 12, 2001 Credit Default Swap Primer Martín González; Lang Gibson
May 31, 2001 Regulatory & Hedge Accounting Treatment for CDS Lang Gibson
May 11, 2001 Total Return Arbitrage CLO Primer Lang Gibson
May 2, 2001 Arbitrage CDO Primer Lang Gibson; Luigi Vacca
April 24, 2001 ISDA Restructuring Supplement Primer Martín González
April 23, 2001 Introducing the BAS HY CDO ROE Index Lang Gibson
April 17, 2001 High Yield Defaults and Their Implications for CDOs Lang Gibson; Martín González
April 10, 2001 Arbitraging the Credit Default Swap and Cash Markets Lang Gibson
21
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Structured Credit Products

Weekly Review April 19, 2002

Structured Credit Strategy Weekly

CDO Topical Research & Strategy

Credit Derivatives Flow* Martín González

Figure 1. 2002 YTD Global CDO Volume

Source: Banc of America Securities LLC.

Figure 2. US and European/Asian CDO Pipeline

US Cash CDO Pipeline European/Asian CDO Pipeline

Total: $18.0bn Total: 48 deals

Source: Banc of America Securities LLC.

CDO Topical Research & Strategy Lang Gibson

This week we evaluate the following topics:

Are HY CDOs Overleveraged?

How Have HY CDO Structures Evolved?

Benchmark Credit Default Five-Year Spreads

Current 1 Week Ago 2 Weeks Ago 3 Weeks Ago

US Financial Benchmarks US Industrial Benchmarks

JPM (Aa3/A+) F (A2/A) IBM (A1/A+) S (A2/A-)

Indicative Five-Year Credit Default Swap Spreads

(Continued on next page)

Indicative Five-Year Credit Default Swap Spreads

Source: Banc of America Securities.

CDO Base Case ROE Barometers

CADR = Constant Annual Default Rate.

CDO ROE Barometer, as of April 12, 2002 (Percent)

ROE Barometer HY Bond a HY Loan b IG Corporate c Multi-Sector d

One Month Average

2001 Average Pre 9-11

Funding Gap (Current Week) 4.24 2.84 1.58 1.78

CDO — Recent Primary Issuance

Synthetic – 3/11/02 Maple VIII RBC 100 IG CDS, A $890.3

Cash – 3/15/02 Triple One UFJ Bank JPY51.2 bn in private ¥49.2

(Continued on next page)

CDO — Recent Primary Issuance

Source: Banc of America Securities LLC.

CDO New Issue Pipeline

(Continued on next page)

CDO New Issue Pipeline

*Indicates issues added to forward calendar during past week.

Visible Synthetic CDO Supply

2002 Visible Tranched Portfolio Default Swap Issuance

Month Name Originator Notional Notes Sector Collateral

2002 Visible Independently Managed Synthetic Issuance

Month Name Manager Underwriter Notional Notes Sector Collateral

2002 Visible Synthetic Balance Sheet CLO Issuance

Month Name Sponsor Underwriter Notional Notes Sector Collateral

Ratings Actions — Downgrades

4/4/02 1999 C*Star 1999-1 Citibank CLO C B+ CC Fitch

4/5/02 1999 Scala 2 BCI SpA CBO A €70.9 BBB– BB S&P

4/5/02 Scala 3 BCI SpA CBO A €42.7 BBB BB+ S&P

4/9/02 Repon 14 Deutsche Bank CDO A B+ B– S&P

4/12/02 1999 C*Star 1999-1 Citibank C B CCC– S&P

Sources: Bloomberg and Banc of America Securities LLC.

Ratings Actions — Upgrades

Sources: Bloomberg and Banc of America Securities LLC.

Ratings Actions — Under Review; Affirmations

4/4/02 1999 C*Star 1999-1 Citibank CLO B A Fitch Affirm

4/12/02 1999 C*Star 1999-1 Citibank A AAA S&P Affirm

Sources: Bloomberg and Banc of America Securities LLC.

Credit Spreads by Rating

Five Year US High Grade Industrial Credit Spreads

Five Year US High Yield Industrial Credit Spreads