Investors in asset-backed securities have had a crash course in distressed scenarios over the past few years, beginning with, perhaps, the collapse of Heilig-Meyers in late 2000, the messy servicing transfer that followed and the ultimate disturbing recoveries to the once triple-A rated bonds.

According to investor sources, Heilig-Meyers senior noteholders have received just 70% of their principal investment, with the mezzanine and subordinate classes completely wiped out. This is believed to be the first and only ABS to date where the senior notes have suffered principal loss. From the look of things, however, there could be a few more.

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