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Triple-A deals unravel

There has been a spate of investment-grade companies getting downgraded to junk, or even default status over the past 18 months, but to see the triple-A-rated securitized bonds of what was an investment-grade company at the start of 2000 hit the ropes is something new and more shocking.

That, though, is precisely what has happened to the Heilig-Meyers deal, and last month investors started to hear that they might be lucky to even get back 50 cents on the dollar from the two triple-A tranches - a $307 million fixed-rate and a $230 million floating-rate note. Those who bought the rest of the $711.3 million deal - an A1, an Aa3 and two Baa2 tranches - may even end up with nothing at all. "For an old triple-A deal," says William Lloyd, global head of ABS research at Barclays Capital, "it's looking really ugly."

The problem dates back to August when Heilig-Meyers, the largest public furniture retailer in the US, announced it was filing for bankruptcy. Initially investors weren't too concerned. Although no securitization is bankruptcy-proof, there have been enough examples of bankrupt companies continuing to service their obligations.

Nonetheless, Moody's put the bonds on negative watch, and everyone waited for more information.

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