Although an agreement between all creditors of DVI Inc. has been reached and the servicing transfer has been set for weeks, the proposal is currently being held up by bankruptcy court, sources said, which, for unknown reasons, refuses to hold further hearings until next month. Performance, meanwhile, continues to deteriorate, with total delinquencies nearing 40% in some transactions.
The proposal is the result of a meeting of various representatives of ABS holders, unsecured bond holders and debtor-in-possession providers at a New York location. Some even listening in from remote dial-in service for five hours last month, to hammer out their differences. For a reason unknown to most, the Bankruptcy Court is refusing to hold a hearing on the proposal until February.
The agreement, laid out in DVI's Jan. 6, 8-K filing with the Securities and Exchange Commission, specifies that the successor servicer (U.S.Bancorp unit Lyon Financial Services) be reimbursed up to $50,000 for out-of-pocket expenses regarding the transfer. It was agreed that the servicing operation itself, be sold for $6 million, paid in 12 monthly installments of $500,000.
DVI seemingly won the battle for the contested servicing fees, totaling $21.3 million, which the agreement stipulates be paid back to DVI, minus a yet-to-be determined "netting amount," according to the agreement. The rational is that this amount rightfully belonged to DVI (and its unsecured creditors) prior to its Aug. 25 2003 bankruptcy filing. Holders of DVI's defaulted 9 7/8% unsecured debt are due roughly $55 million in principal Feb. 1.
If and when Lyon Financial takes over, there is also a variable servicing fee added to the servicing agreements, based on the percentage of the loan balance it recovers. Under the proposal, should Lyon take over, the servicing fee would start at 9% for recoveries up to 20% of the outstanding balance. The fee steps up to 11% for collections up to 35% of the outstanding balance, 13% up to 50% and 15% for any recoveries greater than 50%.
Meanwhile, an unidentified investor reportedly put approximately $36 million of series 2003-1 A1 class notes out to bid, with levels heard in the 30-cent area to the dollar. Sources added that the bonds were put out with a reserve level and no completed trades could be confirmed.