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Clayton Homes, Inc. (CMH) Message Board

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  • algo41 algo41 Jul 23, 2000 7:49 AM Flag

    MH Grave yard??

    "novicewithstocks", I think you are correct about
    how critical sale of ABS are - as is any change in
    criteria for making loans on mobile homes to

    How does one find out how the ABS are doing? Call a
    bond dealer for price quotes?

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    • securities that I have paid much attention to
      have been the ones up for sale at any given time. A
      bond dealer could probably give some valuable insight
      into the overall market, but the manufactured housing
      bonds seem to be come in huge chunks that are bought by
      institutional investors. Oakwood's last AAA offering was
      presold (never actually hit the "open" market), which to
      me seems like good salesmanship and prudent
      marketing. The higher rated securities involve almost no
      risk because they represent a conservative percentage
      of the total securitization. Even CMH, undisputedly
      one of the most solid of the manufactured housing
      companies, frequently keeps their own lowest rated bonds;
      these bonds involve the most risk because they would be
      impacted first in the event of high default rates by
      mobile home purchasers.

      Some folks think that
      the lower rated bonds represent the loans made to
      people who are most likely to default, but this is not
      really the case. My understanding of what actually
      happens is that all of the loans are put in one giant
      pool. The highest rated bonds have first claim to the
      total pool (akin to a first mortgage on a house), sell
      at the lowest interest rates, and offer the company
      the greatest return because they have the greatest
      interest rate spread. The interest rate spread is the
      difference between the average interest rate of the entire
      pool and the interest rate paid each particular bond
      issue. As the bond ratings decrease due to increased
      exposure (akin to 2nd, 3rd, 4th � mortgages), the interest
      rate paid on the bonds increases, so the take home
      spread for the company decreases. The lowest rated bonds
      are the most difficult to sell, but pay the highest
      interest; holding them, or at least holding them until
      someone will buy them at an acceptable interest rate, may
      represent a good investment for the company if it is not
      strapped for cash. The companies offering the
      securitiations could never allow a payment to go unmade
      regardless of the rating of the bond, even though the
      companies themselves are usually not directly liable; if
      any of the bonds defaulted, the company would loose
      their primary source of funding because nobody would
      buy their bonds at a reasonable price, and the
      results would not be pretty.

      If the market gets
      to the point that CMH has any trouble with selling
      asset based securities, the industry will be in much
      deeper trouble than currently seems to be the case, and
      we could well have the blood bath that I do not
      expect but have seen predicted. Again, CMH will be a
      survivor of whatever happens, so its investors should have
      little to worry about over the long (and even reasonably
      short) haul. Oakwood, on the other hand, because it has
      much higher debt, could have much more severe
      consequences; they are making and have already made some major
      changes, so I am still optimistic about their future. My
      understanding is that the bond market has been somewhat
      volatile and unpredictable.

      We will have some
      readers of this board who are much more knowledgeable
      than I--please feel free to correct me, offer better
      explanations, or add to anything I've posted