Spreads for outstanding DVI Inc. medical equipment ABS resembled an accordion last week, widening 200 to 300 basis points after word spread that it was in technical default on its unsecured debt obligations. Levels rebounded, however, after the default notice was rescinded the following day, and DVI announced it had hired accounting firm BDO Seidman as its new independent auditor.
"Once word spread of the technical default, people started comparing DVI to National Century Financial Enterprises, but that was a different situation entirely," said a trader. "The talk did temporarily send bonds that were trading at $96/$97 down to the high 80s in an instant," he added.
DVI's series 2002-1 triple-As moved out to the 500 to 600 basis point area over one-month Libor, only to revert back to roughly 200 basis points over, traders confirmed. As of late Thursday, the leading market maker in DVI's bonds was said to be Merrill Lynch, which was trafficking in five of the largest tranches.
Merrill was reportedly putting a level of 175 basis points over Libor on the A3A class of the 2003-1 series, which Merrill underwrote in May. The two-year class pays a coupon of 50 basis points over one-month Libor.
Also on Thursday, U.S. Bank Corporate Trust Services resigned as trustee for DVI's 9.875% senior unsecured notes due February 2004, citing a potential conflict of interest as a lender. U.S. Bank's resignation did not, however, translate over to its ABS, noted company spokesman John Schoenfelder, who said, "U.S. Bank's resignation is limited solely to the 9 7/8% notes and it remains as a lender trustee and warm backup servicer for our securitizations," he said.