February 14, 2008 at 4:48 AM #118174plexownerParticipant
Super Duper Senior Bonds
In the truth is much stranger than fiction department, UBS is offering “super duper senior bonds”.
UBS highlighted a new structuring technique for Alt-A hybrid deals, which involves carving out ultra high-quality bonds out of the super senior triple-A classes and calling them super duper senior bonds.
“Many investors are reluctant to buy MBS backed by Alt-A collateral including super senior paper, as they fear credit losses,” UBS analysts wrote.
In a hypothetical super duper triple-A deal, the bonds have twice the credit enhancement of the super senior triple-A bond and four times the credit support of the straight triple-A bond. After running the structure through hypothetical scenarios, UBS determined that the super duper senior Alt-A hybrids offer great value relative to prime jumbo super senior hybrids and agency hybrids, and virtually eliminate the credit component.
Some market participants, however, were not as delighted with the prospect of the new structure. “I don’t think it will be anything big,” one trader said. “I don’t think anyone is overwhelmed by it.”
Every day the news gets stranger and more desperate. It’s hard to keep up with it all.
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