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Well here is the downgrade by S&P. The full impact should be felt tommorow. One good thing was that it was not a very significant downgrade, i.e. A- to BBB
Tuesday November 18, 2:34 pm Eastern Time
S&P cuts Green Tree Financial ratings
(Press release provided by Standard & Poor's).
NEW YORK, Nov 18 - Standard & Poor's today lowered its issuer credit and senior debt ratings
on Green Tree Financial Corp. to triple-'B'-plus from single-'A'-minus.
Standard & Poor's also lowered its subordinate debt rating on Green Tree to triple-'B' from
triple-'B'-plus.
In addition, Standard & Poor's lowered its ratings on the subordinated tranches of securitizations
that are supported by Green Tree's rating to triple-'B'-plus from single-'A'-minus (see table below).
Standard & Poor's also affirmed its 'A-2' rating on the company's $2.0 billion commercial paper
program.
Green Tree announced that they will be writing down the value of the company's ownership in Net
Interest Margin (NIM) certificates securitized in 1994 and 1995, as well as writing down other
excess servicing receivables by a smaller amount, in the fourth quarter of 1997.
The total amount of the writedown will be between $125-$150 million. This writedown totals about
39%-46% of the value of the subordinated interest in the NIM, or about 10% of the value of all of
the company's excess servicing receivables.
NIMs are securitizations of excess servicing receivables, sometimes referred to as interest-only
strips. When excess servicing receivables are securitized, the company receives cash for a portion
of the excess servicing assets, however, retains most of the risk through ownership of a
subordinated interest.
The result is an investment that is potentially more volatile than the excess servicing receivables that
were originally on the company's books.
In this case, Green Tree's NIMs relate to approximately $1 billion of excess servicing of which
Green Tree sold roughly two-thirds and retained one-third. Since the two-thirds piece is senior, the
first losses are charged to the subordinated one-third, making it more risky on a dollar-for-dollar
basis.
OUTLOOK: STABLE
Although Standard & Poor's fully writes down the value of Green Tree's subordinated interest in the
NIM certificates when analyzing the company, Green Tree's accounting adjustment reflects changes
in the overall marketplace that underscore the impact of increasing competition.
Green Tree has put into place measures to reduce prepayments and none of its competitors can
match Green Tree's strong origination network.
Regardless, Green Tree will likely continued to be impacted by the increased competition in all
consumer sectors, Standard & Poor's said. |
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