Third-party bids to take over the servicing platform of bankrupt equipment leasing firm DVI Inc. have been submitted and, as of press time, were being reviewed by DIP provider Goldman Sachs. Meanwhile, as DVI fought to retain the servicing rights for its portfolio, collateral performance continued deteriorating.
Deliberations began last Wednesday to decide whether to allow U.S. Bank, as trustee, to terminate DVI's servicing rights and step in as servicer. The hearing was delayed, however, for unspecified reasons and rescheduled for early December, sources said.
The longer the situation takes to shake out, the more investors are sweating another month of declining collateral performance, until a new servicer is put into place. "Whatever they do, I hope they do it sooner rather than later," an investor said. "Because they aren't doing the collateral pool any favors."
The September period servicer reports, filed Oct. 30 and 31, showed an anticipated spike in 60-day delinquencies across all transactions. The worst performer is the 2002-1 deal, which has 60-day delinquencies at 19.8%, up from 5.28% the previous month. Accounts delinquent total 37.1% for 2002-1.
As of late Thursday, third-party servicers had put in their final bids, as RFPs were submitted the previous day. An announcement of the winning bidder is expected this week. The servicing transfer, by DVI's own admission, is right around the corner. "DVI believes it will be able to present the trustee with a proposal well in advance of the proposed servicing transfer, currently scheduled to occur in December 2003," DVI said in its amended 8-K filing with the Securities and Exchange Commission. It remains unclear, even to those who have bid on the servicing rights, what impact the legal proceedings will have on the potential servicing transfer.
In related news, DVI reported last Tuesday that it had overstated the amount of servicer advances owed to the trust, which DVI is currently withholding. DVI reported that it owes $9.3 million to the nine trusts in question as of October, instead of the $10.6 million erroneously reported earlier in the month. DVI maintained that it would continue to withhold servicer advances "until DVI Financial Services, Inc. reaches agreement with the trustee about the existence of an amortization event," DVI said in the amended 8-K filing with the SEC.
Despite the deteriorating performance data it has reported, DVI claims it is making progress in its collections efforts. "DVI's SPG division has added four temporary collectors, and DVI's collectors have been supplemented by an aggressive workout and litigation effort," DVI states in its filing.
"Since the beginning of September 2003, DVI has sent acceleration notices covering $32.7 million of securitized obligations and is readying a number of lawsuits against these borrowers," the filing continues.
DVI places the blame for its deteriorating performance numbers on its inability to repurchase delinquent loans from the trust, while in its current state of bankruptcy. DVI explains that if it had said ability, "DVI could then restructure or work out the troubled leases and loans on its balance sheet, free of the constraints specified in the securitization indentures."
Given that DVI is no longer in a position to repurchase or substitute leases and loans, the company must execute its workout and/or restructuring responsibilities while troubled leases and loans remain inside securitization structures.
For what its worth, should DVI remain as servicer through the next reporting period, the delay in reporting is promised to come to an end. AlixPartners' Montgomery Cornell, acting as a DVI executive, states in a recent letter to the trustee, "I anticipate that DVI will file reports in November on a more timely basis."
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