Fitch Inc.'s grueling month-long investigation into healthcare receivables company National Century Financial Enterprises Inc. (ASR 5/22/00), brought about by three anonymous letters and two federal lawsuits containing allegations of fraud against the company, is not quite finished yet, but so far there is no proof that any of the allegations are true, according to Kevin Duignan of Fitch.

"Based on our extensive analysis and numerous discussions with all the various parties involved - including NCFE, their investment bankers, the auditors, a significant equity investor in NCFE, Lincoln Hospital, and a number of other parties, we have found nothing to lead us to believe that the allegations in the letters are true," Duignan said. "That's where we are at this point."

At press time Duignan was awaiting one more item - a Deloitte & Touche audit of Dublin, Ohio-based NCFE from 1999 - to be delivered, and when the analysis of that document is completed, the intense analysis of the company would be officially completed.

"So far it has been a fairly long turkey hunt and we didn't come back with anything," Duignan added.

In the meantime, NCFE has launched its own investigation into the identity of the authors of the three letters, which included both general and specific information alleging that the company was involved in a pattern of fraudulent activity connected with either non-existent or misappropriated receivables. The letters, sent over the span of one year, were addressed to former Fitch ABS analyst Jeff Orr as well as ASR. Orr now works for Banc One Capital Markets (see Whispers, p. 12).

An official statement from NCFE stated: "We're pleased with the progress and results of Fitch's work to date. In addition, regarding the letters, we have confirmed that they did come from the same individual, and we are looking into the matter further. We have no additional new information at this time."

As far as the two lawsuits against the company are concerned, nothing regarding the status of the lawsuits at this point will lead to any rating action from Fitch.

"We have our in-house counsel look at any lawsuits that are listed in the securitization documents, because there is a requirement that they be disclosed," Duignan said. "So, in between securitization documents, some lawsuits come up, and we don't hear about them until they're required to describe them to us... In the case of the PhyAmerica and Boston Regional Medical Center cases, our counsel looked into both transactions... At this point there is nothing to make us believe that those suits won't be handled in a similar manner to how NCFE has handled other similar suits in the past.

"But if we believe at some point that there will be any material results from those lawsuits, then we'll consider that in our rating process. If all of a sudden these cases proceed and they continue to proceed to a point where we think there will be a settlement or some finding to give us some concern, we would take action."

The intense process and thoroughness that Fitch went through to look into the company made his team go "above and beyond" what they are normally expected to do as a credit rating agency, Duignan said.

"We are not investigators. We do credit analysis," he said. "We are not an investigative firm. We went into much more detail then what we normally do in a transaction. I mean, if they can get around auditors, they can get around us, but after going through very detailed analyses we did not find anything to make us believe those allegations are true."

Since the anonymous letters specifically mentioned the health provider Lincoln Hospital, Fitch did tremendous analysis related to Lincoln Hospital receivables, including a look at where in the audit chain Lincoln receivables were reviewed, including the periodic agreed-upon procedures done for every securitization, and the annual audit done by their external auditors.

That being said, Duignan added: "There is business that NCFE does that is not within the confines of the securitizations. If NCFE is a lender and the loan is not in the securitization, then they can do whatever they want. But in terms of the securitization, the flow of funds for receivables related to the securitization is secure, and consistent with other ABS transactions we would rate."

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