Reports "unreconciled" cash surplus, shortfall...

Collateral performance for the eight outstanding securitizations from DVI Inc. rebounded in the latest reporting period, following the previous month's servicing transfer to a unit of US Bancorp. Sixty-plus day delinquencies, reported last week to the Securities and Exchange Commission, showed significant declines - as much as 50% in some series - from the previous reporting period. But as previous months' delinquencies were charged off, a spike in losses was seen across all series. Additionally, the company reported what it dubbed "unreconciled" cash surplus/shortfalls, which was seen in the red within four of the series.

The dramatically lower delinquencies experienced since the transfer to Lyon Financial, the equipment lease-servicing unit of US Bank N.A., was attributed to a fully motivated and staffed group of collectors in the new servicing platform. "Now there are 60 people working to collect payments, instead of the two that were doing it at DVI," one source said.

Payments overdue by more than 60 days all came in under 20%, with the majority between 10% and 15%. While still relatively high, 60-day delinquencies topped 30% in several series, with many of the remaining rapidly approaching the 30% threshold. The greatest turnaround was in the series 1999-2 transaction, which reported 60-day delinquencies at 10.3%, versus its all-time high level of 32.3% seen in January. The 1999-2 series reported, however, chargeoffs hitting 5.36%, up from just 0.7% the previous reporting period. The largest spike in chargeoffs was seen in the 2001-1 series, which had 15.25% losses, versus 7.16% the previous month.

With the focus primarily on pool performance, it was difficult for market players to make sense of the unreconciled cash reporting. While at face value the four trusts reporting cash shortfalls are seemingly underfunded, it's unknown at this point whether any surpluses could be shared with other series, or if it would be worth it to do so.

"You may or may not be able to take the excess and throw it into another series," said one analyst familiar with the developments. "But fixing the problem could turn out to be more expensive then the problem itself. Correcting a shortfall at a legal and administrative cost greater than the shortfall wouldn't make much sense. And these shortfalls are relatively small compared to the potential for losses due to delinquencies."

The series with the greatest shortfall is the most recent transaction, series 2003-1, which reported a $137,800 deficit, or roughly 0.2% of the deal as a whole. The other three underfunded transactions ranged from $25,000 to $60,000 in negative balances. Conversely two series, 1999-1 and 2001-2, were in the black by roughly $250,000 and $425,000, respectively.

Taking into account the cumulative surpluses and shortfalls, the eight series have a total surplus of more than $500,000, 1.85% of outstanding DVI ABS.

"The positive variances [within the series] are just as creepy as the negative ones," the researcher added.

Following the release of performance statistics last Tuesday, trading remained muted, as anyone willing to buy DVI paper had already done so and is now just trying to figure out what the return will be. "[There is] no trading, just nervous owners," one investor added. The value is linked 100% to recoveries, and investors are still looking at the numbers.

"Subordinate holders in these deals may get clipped, but right now senior holders shouldn't be affected," he added.

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