Fitch Dwngrs United Companies Financial Corp. Manuf Housing Bonds.

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 8, 2000

Fitch has downgraded the ratings of 11 classes of United Companies Financial Corporation's manufactured housing transactions. Additionally, 8 classes of bonds are moved to Rating Watch Negative from Rating Watch Evolving.

Fitch has taken numerous rating actions on the company's manufactured housing bonds since Oct. 1998 (see press releases dated Feb. 3, 1999 and June 24, 1999 on Fitch's web site 'www.fitchratings.com'), when UCFC first announced it would sell or close its manufactured housing business. These actions reflected Fitch's concerns regarding the possibility of any adverse impact on pool performance as a result of the sale or closing of the company and the transfer of servicing from the Minneapolis manufactured housing operation to Baton Rouge where the company's home equity loan servicing shop was located. The subsequent Chapter 11, bankruptcy filing by the company in March 1999, caused heightened concerns regarding maintenance of servicing quality.

Since the bankruptcy filing, UCFC has continued to service its multi-billion dollar portfolio of home equity and manufactured housing loans. In Jan. 2000, the company signed a letter of intent to sell its home equity whole loan portfolio, and its residual interests and servicing rights to EMC Mortgage Corp. (EMC), a wholly owned subsidiary of the Bear Stearns Companies Inc. Because UCFC was operating in Chapter 11 reorganization, the sale was contingent upon the approval of the U.S. Bankruptcy Court and was subject to negotiation and execution of definitive documentation. However, at that time it was unclear as to the outcome of the servicing of the manufactured housing portfolio.

The manufactured housing pools have displayed a relatively high level of delinquencies and repossessions. Additionally, poor performance has caused considerable interest shortfalls on the subordinate bonds of a number of transactions. On June 24, 1999, a number of the company's manufactured housing bonds were downgraded and/or placed on Rating Watch Negative until more information became available as to the outcome of the servicing and the impact on pool performance, particularly with regard to interest shortfalls. On Aug. 11, 2000, it was confirmed that UCFC would, sell its home equity whole loan portfolio, residual interests and servicing rights to EMC.

At this time, although a small number of loans (series 1996-2 and a number of whole loans) are expected to transfer to EMC, Fitch is not aware of a plan to transfer the servicing of the eight securitized manufactured housing pools. Fitch's rating actions reflect the uncertainty surrounding the status of the servicing operation as well as the poor performance of the pools. With regard to interest shortfalls, the majority of the subordinate bonds are expected to experience prolonged disruptions in interest payments. A number of 'AA-' rated bonds have experienced interest shortfalls as well. Whether the shortfalls to the 'AA-' rated bonds will be short-term or will occur over a prolonged period of time depends upon collateral and servicing performance. Fitch's ratings on these securities address the likelihood of receipt of distributions according to their terms. Since the financial structures provide for repayment of interest shortfalls which Fitch believes may be recoverable, these classes are being placed on Rating Watch to inform investors of their present cash flow status.

Three of the securities (1997-1 through 1997-3) are enhanced by a limited guarantee from United Companies Financial Corp. As the ratings on these bonds are based upon the corporate rating of UCFC, these bonds have been downgraded a number of times since Oct. 1998, following each of the downgrades on the company's corporate rating. On June 24, 1999, Fitch downgraded these securities to 'CCC' despite the rating of 'D' on the company. At that time, although poor pool performance caused interest shortfalls, UCFC was honoring its requirement to make interest and principal payments to these bondholders. The 'CCC' rating was based upon the company's guaranty payment despite its bankruptcy status and 'D' rating. Beginning on the June 15, 2000 Distribution Date, UCFC ceased making guaranty payments. As the company has defaulted on its obligation to make the required guaranty payments, these securities are now rated 'D'.

The affected securities are:

United Companies Financial Corp's manufactured housing contracts pass-through certificates:

-- Series 1996-1, class B-1, downgraded to 'BB-' from BBB,

-- Series 1996-1, class B-2, downgraded to 'CCC' from 'B' and will remain on
Rating Watch Negative,

-- Series 1997-RS1, class A, downgraded to 'B' from 'BB-' and will remain on
Rating Watch Negative,

-- Series 1997-1, class B-1 downgraded to 'B' from 'BB' and will remain on
Rating Watch Negative,

-- Series 1997-1, class B-2, downgraded to 'D' from 'CCC',

-- Series 1997-2, class B-1, downgraded to 'BB' from 'BBB' and will remain on
Rating Watch Negative,

-- Series 1997-2, class B-2, downgraded to 'D' from 'CCC',

-- Series 1997-3, class B-1, downgraded to 'BB' from 'BBB' and will remain on
Rating Watch Negative,

-- Series 1997-3, class B-2 downgraded to 'D' from 'CCC',

-- Series 1997-4, class B-1, downgraded to 'BB' from 'BBB' and will remain on
Rating Watch Negative,

-- Series 1998-1, class B-1, downgraded to 'BB' from 'BBB' and will remain on
Rating Watch Negative,

-- Series 1998-2, Class B-2 downgraded to 'B' from 'BB' and will remain on
Rating Watch Negative.

Additionally, the following securities are placed on Rating Watch Negative:

-- Series 1996-1, class M,

-- Series 1997-1, class M,

-- Series 1997-2, class M,

-- Series 1997-3, class M,

-- Series 1997-4, class M,

-- Series 1998-1, class M,

-- Series 1998-2, class B-1,

-- Series 1998-3, class B-1.

Fitch will continue to monitor the performance of the collateral pools backing the securities as well as the status of the servicing platform.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.