With both the Conseco Finance and Oakwood Homes situations seemingly resolved, and spreads having stabilized in recent months, Banc of America Securities researchers took a closer look at Oakwood MH transactions and found additional losses and ratings volatility ahead. Calling the ratings on the most senior positions within the capital structure "currently high" for bonds issued from 1997 through 2002, given the loss coverage protection, BofA predicts downgrades of seniors and principal writedowns for all mezzanine and subordinate tranches in the focus group of outstanding ABS. In its analysis, BofA stressed in an aggressive scenario wherein all bonds were run to maturity. Delinquency and loss triggers were set to fail, and loss severity was set at 80% for the next two years and 60% thereafter. Using this data, BofA then assigned implied ratings to Oakwood Homes MH ABS, and found many to be over rated. In addition to poor performance of mezz and sub bonds, loss coverage on seniors is insufficient as well. Under its moderate base-case scenario, BofA found that current ratings are significantly higher than they should be and that "only seven out of the 60 senior bonds that we ran stresses on warrant a triple-A rating based on our implied ratings scale." Not surprisingly, BofA found that as its stress scenarios became more intense, the newer vintages suffered the most. As a result, BofA believes that the safest haven is in the 1997 vintages. Furthermore 1997-issue senior bonds, under moderate to aggressive stresses, do not see any principal writedowns. The same cannot be said for many other Oakwood bonds, which BofA expects to underperform.


Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.