Investors in the securitizations from National Century Financial Enterprises (NCFE) are awaiting the results of an investigation performed by accounting firms Houlihan Lockey and M.R. Weiser into the state and validity of NCFE's healthcare receivables. Preliminary information could be reported back to investors sometime this week, sources said.

Both outstanding NPF trusts were further downgraded last week by Moody's Investors Service, as the rating agency remained concerned over the discrepancies between actual trust cashflow and the receivables as represented in the servicing reports. Since Oct. 25, Moody's has lowered the once Aaa' rated classes of NPF XII twelve notches to Ba3,' an almost unprecedented ratings event for securitization. The A class notes from NPF VI trust have been taken down to Ba2.'

A spokesperson at NCFE declined to comment on Moody's rating action. Coincidence or not, last Wednesday afternoon NCFE's Web site went offline, and had remained so through deadline Thursday night. According to published reports, NCFE's CEO Lance Poulsen stepped down from several directorial posts at NCFE subsidiaries, including National Premiere Finance Services, NCFE's servicing arm.

Contacts at Fitch Ratings confirmed that the agency has not received any new information from the company since it withdrew its ratings on Oct. 28. Also last week, Standard & Poor's officially stated its distance from the developing debacle, announcing that it has not rated an NCFE deal since 1995 because of its credit concerns with regards to the receivables.

Several large publications including the Wall Street Journal picked up on the situation last week, highlighting the resulting cash crunch for healthcare providers that are dependent on NCFE for funding. Many of those entities are seeking to reclaim the receivables owed the trust from the insurance companies and Medicare/Medicaid.

The implications of this are frightening, one source argued. If NCFE is found to have violated contracts with these healthcare providers, the contracts may be ruled invalid, and the providers would have a strong case in court. An analyst following the deals, however, noted a significant distinction between future receivables and those that had already been purchased and are owed the trust.

"It's worth exploring how valid the receivable sales are in the event that the seller documents are violated," the source said. "It's basically a factoring transaction. I assign you the rights to be paid in return for cash up front. If you don't give me the cash, is the assignment voidable?"

NPF XII is still revolving but the trustee, Banc One Corporate Trust Services, is no longer releasing cash to NCFE, which would allow it to purchase additional receivables, a spokesman for the company said. "We've provided instructions to fund and they are not funding," he added.

According to Moody's, neither JPMorgan Chase, trustee on NPF VI, nor Banc One have firmed up agreements with standby servicers. Because of servicer default (as a result of depleted reserve accounts), investors have been given the option to replace NCFE on the NPF XII. Another such trigger would be an event of insolvency.

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