The bankruptcy of Oakwood Homes will test for the first time the value of a form of credit enhancement commonly used in manufactured housing sub tranches - the corporate guaranteed B2 tranche - which rose to prominence back when the majority of MH lenders garnished investment-grade ratings. In its most recent 8-K, filed last week with the Securities & Exchange Commission, Oakwood proposed that as part of its reorganization, holders of $275 million of sub paper are being offered a 36% equity stake in whatever entity emerges from bankruptcy.

While investors expect Oakwood B2 ABS bonds to lose some principal, the guaranty offers essentially puts B2 investors in the same, or even better position as senior debt holders in the bankruptcy proceedings. Unlike the senior debt holders, ABS investors retain their interest in the B2 paper, as this is an exchange for the guaranty rather than the bonds themselves.

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