prepayments. One factor that may affect prepayments is the pre- vailing level of interest rates relative to the interest rate on the loan. In projecting prepayments it is critical to estimate the extent to which bor- rowers are expected to take advantage of a possible decline in interest rates below the loan rate by refinancing the loan. Modeling defaults for the collateral is critical in estimating the cash flow of an ABS. Proceeds that are recovered in the event of a default of a loan prior to the scheduled principal repayment date of an amortizing asset represent a prepayment. Projecting prepayments for amortizing assets requires an assumption of the default rate and the recovery rate. For a non-amortizing asset, while the concept of a prepayment does not exist, a projection of defaults is still necessary to project how much will be recovered and when.       MAJOR ABS SECTORS   Below we review major sectors of the asset-backed securities market. Exhibit 10.1 presents a Bloomberg screen that summarizes ABS issuance for the period January 1, 1999 through August 22, 2001. The box labeled "Collateral" indicates the dollar amount (billions of dollars) of ABS by type of underlying collateral, which includes credit card receiv- ables (CARD), auto loans (AUTO), home equity loans (HOMEQ), man- ufactured housing loans (MANUF), and student loans (STDLN). Second, the box labeled "Deal Structure" indicates the dollar amount of ABS by the payment structure and includes sequential (SEQ), controlled amortization structure (CAM), hard bullet and soft bullet (HB/SB), sub- ordinated (SUB), and all others. These different types of payment struc- tures will be discussed later in the chapter. The next box is labeled "Interest Method" and indicates the dollar amount of floating-rate ABS issued versus all other types (e.g., fixed-rate). The final box labeled "Class Rating" shows dollar amount of ABS issuance by credit rating.   Auto Loan-Backed Securities Auto loan-backed securities are issued by (1) the financial subsidiaries of auto manufacturers (domestic and foreign), (2) commercial banks, and (3) independent finance companies and small financial institutions specializing in auto loans.     Cash Flow and Prepayments The cash flow for auto loan-backed securities consists of regularly sched- uled monthly loan payments (interest and scheduled principal repay- ments) and any prepayments. For securities backed by auto loans,