Wednesday, February 13, 2008

Super Duper Senior Bonds

by Tanta on 2/13/2008 08:20:00 AM

I will have you know I did not make that up.

Aside from the small trickle of deals, 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."
I'd think not. "Super Duper" sounds like the kind of thing you hear at a Junior League luncheon (not that I've ever been invited to one, you know, but you hear stories). I think they need a better name for this.

Belt and Suspenders Bonds? Belt and Suspenders and Duct Tape Bonds? Belt and Suspenders and Duct Tape and Airbag Bonds? Belt and Suspenders and Duct Tape and Airbag and Flame-Retardant Jammies Bonds? If we're going to act like we found the recipe for a quintuple-A rating, we might as well be vivid.