American Home Mortgage issues $850 million of servicer advance notes

American Home Mortgage Servicing issued $850 million of servicer advance notes recently after getting high ratings on the residential mortgage-backed securities from two ratings agencies. Standard & Poor’s assigned triple-A ratings to the $650 million senior tranches and triple-B ratings to the $200 million tranches. Last week, DBRS assigned provisional triple-A ratings to the senior notes, with triple-B ratings on the subordinate debt, as well. Analysts said the expected recovery rates for the underlying servicer advance receivables, liquidity sources, credit support, and legal structure of the deal, support the gilt-edged ratings. “The likelihood that the recoveries on the servicer advances together with the reserve fund, the overcollateralization, and the interest rate-cap proceeds will be sufficient under our triple-A and triple-B stresses,” Standard & Poor’s said. Deutsche Bank (DB) led the private placement, which included a revolving pool of advances made on mostly subprime mortgages. The collateral for the notes comes from 157 RMBS trusts serviced by American Home Mortgage, according to published reports on the transaction. Fitch Ratings said the transaction failed to meet its triple-A criteria because of concerns regarding liquidity risks due to longer foreclosure timelines and the changing regulatory landscape. Fitch analysts determined the advance rates on receivables were too high to qualify for triple-A ratings. Also the reserve fund held enough to meet nine months of collections, which isn’t enough to satisfy the qualifications for the highest ratings, according to Fitch. Write to Jason Philyaw.