The battle cry for managers who have experienced downgraded HY deals is, "It's the vintage, not us." Investors say they take this excuse for poorly performing deals seriously, but with a large grain of salt as well. One 1999 vintage HY CDO which is suffering made matters worse by swapping the double-B notes of its deal with that of a friendly asset manager who couldn't sell their double-Bs either. Unfortunately, since they're both in the same vintage, they are both suffering together, although the Summit CBO I (see below) is suffering far worse. "This kind of old-boys network' swap is why we argue for tight restrictions on the size of the CDO bucket in new CDO issues," added one investor.

Summit CBO of April 99

AAAs in play

For investors with a strong stomach and good credit work the triple-As on the Summit Investment Partners, April 1999 Summit CBO I are in play. Prudential was the underwriter. A dealer bid would be around 90 cents, while a private investor bid might be about 91.5 cents on the dollar, sources said.

Given that that there is some risk of losing principal here, Libor +300 is about where this deal would trade, speculated CDO sources, adding that a CDO-of-CDO manager might even be willing to buy the bonds at Libor +250, since even if the deal was bumped down to triple-B it would still be eligible for its collateral pool. Both Standard & Poor's and Moody's have the triple-As on watch/review.

According to rating sources, said they started amortizing in November 2000, the triple-As have paid down about 9% from a total $232 million. While $28.8 million of defaulted securities have been sold at a 40% recovery rate, the manager is still holding $52.2 million in defaulted securities with an estimated recovery rate of 15 cents on the dollar, market sources added.

The manager is understood to be not failing any concentration tests and is holding a wide array of sectors, such as beverage-, food-, and industrial bonds. As of Sept. 10, Summit had its double-A minus (S&P) tranche downgraded to triple-B, a five-notch move south. - DG/IFR Asset-Backed Securities

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