Opal CDO/Structured Products Summit

We came down to sunny southern California for the Opal Financial Group Summit which ended yesterday and thought we'd relay some of what was spoken about.

To be fair, despite the lush greens of the Dana Point resort town, the attendees were rather bleak about what the future holds, in terms of the resurrection of the structured finance market in general, the calling of the "bottom," expected future recovery rates, and the foreseeable issuance (or lack thereof) of new issues to the market in general and particularly relating to residential and bank loans.

Across the board, panelists expressed their views that 2009 would be a very tough year. Wide-spread pessimism as to the leveraged loan recovery rate future relative to other historically difficult times, with Four Corners' Michael McAdams being the notable exception, expecting 1st lien recoveries above the 50s to low 60s region, particularly for good managers who are able to hold on to the loan for a while post default.

On the economic side of things, from the panels and from discussions we had with market participants, almost nobody was confident in the government's effectuation of the Troubled Assets Relief Program (TARP) and almost everyone was opposed to the automakers' bailout. There was less talk about the covered bond market alternative to securitization than we would have expected ... perhaps alternative lending forms and mechanisms are in developmental stages behind the scenes to repaint the unfairly blemished face of the securitization industry. We'll share our views on the covered bond market shortly.

To end on a positive note, traders were seeing increasing trading levels over the last month, and expect this to continue through year-end at last, as (often newly-funded) opportunistic and distressed funds have begun to put their capital to work.

Is this a (permanent or temporary/false) bottoming with technicals matching fundamentals, or simply an end-of-year rebalancing and maneuvering of balance sheet assets and liabilities for fiscal year-end accounting and audit purposes?