Pending amendments to the pooling and servicing agreements of the transactions within which Shilo Inn loans were securitized should pacify servicers on those deals who were concerned over potential interest shortfalls, according to Standard & Poor's. The Shilo Inn loans entered bankruptcy in 2002.
"The amendment allows them to divert some of the principal to pay back the servicer advances so there will not be an interest shortfall," said Roy Chun, a managing director at S&P.
The amendment appears to make use of a newly accepted market structure called a Work-Out Delayed Reimbursement Amount, or WODRA, writes Roger Lehman, managing director of mortgage research at Merrill Lynch, in a recent report. While some recent deals have incorporated the WODRA concept into their documentation, the Shilo modification represents the first real test, Lehman said.
Uncertainty surrounding the fate of the Shilo Inns loans had held up rating actions on several transactions, Chun said. When the amendment was announced, S&P proceeded with actions affecting 15 classes in three transactions including CMAC 1997-MLI, MLMI 1997-CI and MLMI 1999-C2. The actions were not all directly related to the status of the Shilo Inns loans. "With the resolution of Shilo, we were able to make a better determination of where the ratings should be for these deals," Chun said.
Several classes were taken off negative watch; S&P reported that its liquidity concerns related to the Shilo Inns loans had been alleviated.