Spreads for DVI Inc. medical equipment lease ABS have widened significantly since accounting firm Deloitte & Touche announced it was stepping down as its independent auditor, which triggered ratings actions from all three rating agencies on the issuer's corporate unsecured debt. With the market asking whether this was the beginning of a blowup, or a buy opportunity, spreads on some classes of recently priced ABS widened by as much as 40 to 50 basis points on the bid side.
Spreads for DVI's most recent securitization, series 2003-1, were bid at 90 to 100 basis points over one-month Libor last week, out from pricing levels of 50 basis points over for the 2.8-year triple-A rated A3A notes. Merrill Lynch acted as lead manager for DVI XIX 2003-1.
Sources close to the situation brushed off the news and the subsequent downgrades and credit watch placements on DVI's debt, calling the news "more of a credit event than ABS-related." One source added that all of DVI's outstanding ABS are performing and there has been no rating action on any of DVI's outstanding ABS.
According to the 8-K filed earlier this month, Deloitte & Touche had resigned as independent auditor due in part to a disagreement over DVI's "monitoring of nonperforming assets and the Company's assessment of impaired assets."
What followed was Standard & Poor's placing DVI's single-B rated senior debt rating on watch for a downgrade and both Fitch Ratings and Moody's Investors Service downgrading DVI's debt rating to single-B plus and B3', respectively.
U.S. Bank Corporate Trust Services, as trustee, is the backup servicer for DVI's medical equipment ABS, something that actually instilled confidence in the DVI bonds. "U.S. Bank, as a commercial lender, would have experience with assets of this type," one investor said.
"These aren't manufactured housing loans, which nobody has a handle on," the investor added, referring to Conseco's servicing transfer, for which U.S. Bank also acted as trustee.