Amid Financial Woes, Oakwood Presses On


Despite recent financial troubles and rating downgrades, Oakwood Homes will trudge forward, currently preparing a $300 million fourth-quarter deal to hit the market this month, said Doug Muir, senior vice president and treasurer at Oakwood.

Following the renewal of two credit lines - a $325 million warehouse-lending facility and a $125 million revolving-credit facility - Oakwood feels confident going forward, Muir added.

"To the extent that there were any questions in investors' minds as to whether those facilities would be available to us, that question has now been put to bed, and removes what might have been an issue for some investors," Muir explained. "The renewal and extension of both those major short term credit facilities are positive in terms of our ability to access the ABS market."

Oakwood's pending deal, a senior-subordinate structure, will be led by co-managers Credit Suisse First Boston and Banc of America Securities.

"What the exact characteristics of the triple-A's senior securities will look like depends whether we choose to go with the tranche structure with a variety of maturities, or whether we chose to go the passthrough route," Muir said. "And that's solely a function of what buyers are present in the market and what their appetite for particular types of securities is."

Recent Downgrades

Starting on Oct. 8, Oakwood felt the stab of ratings, as Moody's Investors Service downgraded the company's senior unsecured debt, to Ba2 from Baa3, and later in the month further downgraded the debt to Ba2. Meanwhile, Fitch IBCA took similar action, downgrading Oakwood's senior notes to BB-minus last week, following an October downgrading to BB from BBB-minus.

The Fitch downgrades reflect Oakwood giving up collateral - a large portion of the company's retail inventory - to renew the facilities, said Shanon Batchman of Fitch.

"It's not the company that's in a weaker position [from the ratings]," Batchman said. "It's the bond holders. The company doesn't care. The company has liquidity now."

It's this liquidity that will allow Oakwood to remain viable, she said, so that the company can continue with day-to-day operations such as servicing and lending, which indirectly improves credit quality on deals going forward.

As far as the effect of these downgrades on Oakwood's asset-backed agenda, Muir stated: "Oakwood's been a securitizer since 1988, and for most of those years, up until February 1997, Oakwood was not an investment grade company, and we successfully securitized for nine years before we were an investment grade company, so I expect we'll securitize with a non-investment grade rating. We did it for years."

An analyst close to the company thinks that Oakwood is on the right track. "They've made some steps here, recently re-negotiating the revolving credit agreement," the source said. "[And they've] taken some steps towards finding buyers for the subordinated portions of their asset-backed securities that they're holding on balance sheet.

"At the same they've got a lot of challenges in front of them, not the least of which is lowering their inventory levels, which are probably among the highest in the industry, and it's a tough industry environment to try and turn the thing around."

The source added that Oakwood seems to be trying to manage the company for cash, which is prudent given the kinds of liquidity pressure they're under.

"They seem to be okay, but certainly the things going on don't make it any easier, or less expensive," the source said.