As part of its liquidation, insolvent Heilig-Meyers recently sold approximately $60 million of its unsecuritized consumer receivables to four parties, including Arrow Financial, Greenwich Capital Markets, and two well-known portfolio investors, according to sources.

The portfolio, which was won in an auction-style offering, was split four ways evenly.

Arrow, taking its share on its books, is the exclusive special servicer for the portfolio, which is reportedly between 15% to 20% delinquent. The $60 million represents origination of consumer receivables between Heilig-Meyers' last securitization in 1998 and its bankruptcy in September of 2000.

Had Heilig-Meyers continued as a going concern, the receivables would have likely ended up in its master trust, a source said.

According to Michael Valentino of Arrow, the company has recently been asked to act as a back-up servicer in certain securitizations, which it expects to be a new area of growth for the company. Arrow specializes in acquiring, securitizing and servicing distressed consumer assets, ranging from utility bills, to charged off credit card accounts.


As for the Richmond Va.-based furniture retailer, which in bankruptcy became one of securitization's biggest blunders, the once triple-As from both outstanding series (1998-1/1998-2) are now rated CC' and Caa2' by Fitch and Moody's Investors Service, respectively.

"The double-C from Fitch indicates that some sort of default is probable," said Mike Dean, credit card analyst at the rating agency.

Fitch took its most recent action on both series at the end of September, stating that collections have dropped further in recent months. According to Fitch, collections were averaging $33 million per month through April (from December), but have trended down to less than $20 million for July and August. The trust is expected to make its next distribution on Oct. 20.

The class B notes on both trusts, which Fitch rates at D', have yet to receive principal payments. Current outstanding balances on both trusts are less than 50% of the initial balances.

Moody's currently has the class Bs and the class Cs at Ca' last taking action in June.

The failure of the Heilig-Meyers securitizations are attributed to a decentralized servicing platform, in which the borrowers made payments at the various retail locations. Problems arose when Heilig-Meyers shut its doors in bankruptcy.

Last fall, trustee First Union oversaw a servicing transfer to OSI Portfolio Services. It wasn't until early 2001 that information on the performance of the securitizations came to light.

Shortly after, all three agencies begun downgrading the outstanding deals, though they had been on watch since fall 2000.

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