Securitizations That Dodge Bankruptcy 'Bullet' Rest On Qualitative Strengths
A survey of the impact of seller-servicer bankruptcies on their securitizations by Moody’s reveals that investors in these deals ultimately benefit as much from qualitative factors such as diversity of the seller-servicer’s funding sources as from legal and structural safeguards. Furthermore, market history now appears to indicate that as assets become less commoditized or the deal structure and servicing more complex, there is a greater chance that securitization won’t completely succeed in insulating investors from losses. The securitization market’s lengthening history includes both bankruptcy- or receivership-related blowups such as Heilig-Meyers, LTV Steel, NextCard, and Contimortgage, as well as securitizations that were taken out in an orderly process. The differences between the level of investor protection in those deals can ultimately be traced to qualitative factors relating to the transactions and their sponsors and to the practical realities of the financial community, in Moody’s opinion.