Former triple-As downgraded to junk...

Despite the declining portfolio performance and recent wave of downgrades in DVI Inc. medical-equipment lease ABS, new servicer U.S. Bank Portfolio Services tried to quell investor concerns during a call last Tuesday. USBPS it has assigned nearly 25 collectors to the project and is working closely with lease obligors to collect at least a portion of the funds owed.

USBPS also said it was close to either restructuring the contracts or collecting, at a slight discount, the funds owed by its four largest "relationship accounts," although the specific obligors were not disclosed.

The obligor on the hook for the largest amount - a component to all nine outstanding transactions - reportedly owed DVI $158 million and was restructuring its lease contracts. Other "relationship accounts" reportedly owed DVI from $20 million to $50 million.

"DVI clearly does not want to repossess any of the equipment; they would much rather collect the rent income owed them, even if its at a discount," one investor who participated in the call said. "It's almost like the manufactured housing market, where there really is no secondary market value for the hard assets."

Despite any progress in restructuring leases, Moody's Investors Service downgraded 55 classes of DVI ABS, totaling $1.1 billion. The latest wave of downgrades, which brought former triple-As to junk status, led some to believe that, regardless of any remedies taken by U.S. Bank, many of DVIs bonds will eventually default.

"I believe most bondholders will eventually collect something, but past the legal final maturity," the investor added. "There is value in these bonds and I believe I know what it is."

Further details, including transaction specific obligor concentrations, will be available in next week's ASR.

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