With Carrington having been in the news of late, we thought we would investigate the performance of one of its bonds.
Today's bond is currently rated A2 by Moody's (MCO), CCC by Standard and Poor's (MHP), and CC by Fitch. (Carrington Mortgage Loan Trust, Series 2004-NC1 ; Class M2 ; CUSIP: 144531AF7)
This residential mortgage backed security (think "toxic asset") survived through to 2009 before first being downgraded by Fitch. Standard and Poor's followed suit in 2010. Moody's retains it at its original A2 rating.
Split ratings like these, in an ideal world, provide a trader with an ideal opportunity to profit if she can correctly express her opinion as to the credit quality of the bond. Of course, there's no simple mechanism for shorting a RMBS security that you think is over-rated -- but buying a bond you believe to be under-rated can provide handsome rewards, if you're right.