After months of repeated legal challenges, Union Acceptance Corp.'s bankruptcy proceedings managed to strum a chord in MBIA's favor last week. The monoline achieved the servicing transfer it sought for a billion-plus dollars worth of Union's auto receivables.

The U.S. Southern District Bankruptcy Court of Indiana hear-ing the case granted Union's (UAC) servicing platform, and the rights to service $1.8 billion of securitized auto receivables, to Systems & Services Technologies Inc (SST) a wholly owned subsidiary of JPMorgan Chase Bank.

MBIA has been seeking a servicing transfer since fall 2002. Now complete, the transfer essentially nails the coffin shut on UAC's asset-backed market, sources said. The bankrupt auto lender has no business from which to reap any sort of profit. Noteholders in UAC deals, however, are shielded by the surety wrap from MBIA.

Included in the transaction are all of UAC's 18 outstanding securitizations, representing approximately 155,000 accounts. SST has made offers of employment to most of UAC's employees, according to a company spokesperson, and will use UAC's existing headquarters facility. UAC's subsidiaries retain all residual interests in the securitized assets, according to UAC.

At issue was UAC's ability to obtain short-term funding and its ability to maintain the current level of servicing. UAC had been able to hold MBIA at bay through court by obtaining three extensions on a restraining order placed against MBIA, which prevented the monoline from obtaining a new servicer. That third extension expired March 31 and MBIA wasted little time transferring servicers.

Officials at MBIA decline opportunities to comment as of press time.

According to sources, UAC had been looking for debtor-in-possession (DIP) financing to stave off MBIA's request but was unable to obtain any. It was also seeking buyers for roughly $300 million of receivables currently warehoused by Bank of America N.A.

The servicing transaction was approved by the Court and closed April 17. Efforts by UAC to sell its remaining unsecuritized receivables, which includes an on-balance sheet portfolio of $5 million, are "ongoing" said a company spokesperson. A hearing relating to the sale of this portfolio is slated for today, April 28.

Despite months of warring with MBIA and fighting for its own survival, UAC's CEO Lee Ervin was quite cordial a pre-written statement about the sale.

"We are pleased with the positive outcome of this transaction with SST and believe the sale is beneficial to our creditors, customers, investors, and employees," Ervin said. He noted the servicing transfer was a major step toward bankruptcy resolution.

UAC filed for bankruptcy on Oct. 31, 2002.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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