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ABS Investors Await DVI Servicing Switch
Total Securitization -- Institutional Investor News (October 31, 2003)

Asset-backed investors say they are watching closely whether the servicing rights for DVI Inc. bonds will be turned over to a third party in the coming weeks as part of the medical equipment financier's bankruptcy proceedings. The rights to service the underlying loans are on-balance sheet and cash-flow generating, making them assets that will be auctioned off as part of the bankruptcy process. Bids on the servicing rights were due as SN went to press last week, according to one analyst. US Bank, the back-up on many of DVI's outstanding transactions, is expected to be among the bidders. Steve Dale, a spokesman for the bank, and Joel Weider, the current spokesman for DVI, did not return calls.

"This is an important step in the process," notes one investor. A transfer would be a boon to DVI investors because losses have skyrocketed since the company declared bankruptcy, according to Irina Faynzilberg, a senior analyst at Moody's Investors Service. "Delinquencies went up by a factor of three to five times in some deals, which is tremendous," she says, citing the most-recent servicing reports

A rough estimate of fair value for the portfolio of servicing rights on the more than $1.5 billion in outstanding DVI bonds could not be determined. But, in general, "servicing rights are more valuable in a rising rate environment because prepayments are likely to decrease," according to Janet Tavakoli, president of Tavakoli Structured Finance, a Chicago advisory firm. In that sense, she likens servicing rights to interest-only mortgage-backed securities.

DVI declared bankruptcy a couple months ago, shortly after Merrill Lynch helped it sell triple-A structured finance bonds.



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