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Rating Action:

MOODY'S DOWNGRADES MOST OF DVI FINANCIAL'S MEDICAL EQUIPMENT LEASE SECURITIZATIONS; NOTES REMAIN ON REVIEW - DIRECTION UNCERTAIN

17 Nov 2003
MOODY'S DOWNGRADES MOST OF DVI FINANCIAL'S MEDICAL EQUIPMENT LEASE SECURITIZATIONS; NOTES REMAIN ON REVIEW - DIRECTION UNCERTAIN

Approximately $1.7 Billion of Asset-Backed Securities Downgraded.

New York, November 17, 2003 -- Moody's Investors Service downgraded 56 classes of notes issued in nine medical equipment lease securitizations by DVI Financial Services, Inc. (DVI), leaving them under review - direction uncertain. The downgrades reflect the sharply weaker credit performance of DVI's securitized lease receivables following its bankruptcy in August.

In July 2003 DVI reported that it lost its sources of liquidity and was unable to continue regular loan and lease origination activity, which led to its filing for Chapter 11 bankruptcy protection on August 25, 2003. Subsequent to the filing, DVI attempted to sell all of its unencumbered assets, but on October 8, 2003, announced that it did not accept any of the bids. At the same time, it stated that it would attempt to sell individual assets and wind down any remaining assets within its portfolios.

The current downgrades of DVI's securities follow downgrades made on September 11, 2003. The previous downgrades were due to a greater likelihood of deterioration in the performance of the transactions as a result of the heightened financial distress of DVI and uncertainty with respect to the quality of servicing.

The performance since September has been worse than Moody's anticipated, resulting in the current downgrades. As of the November 2003 distribution date, the 30+ delinquency rate for DVI's deals ranged from 25.0% to 38.0%, approximately four-to-seven times higher than the average rates for the months of January through July of 2003. Furthermore, since DVI stopped repurchasing and substituting delinquent receivables in July 2003, default levels have started to rise as well. As of the November 2003 distribution date, cumulative defaults were particularly high for the 2001-2 and 2003-1 transactions. In addition, no proceeds from recoveries on the previously defaulted contracts have been deposited to the trusts' collections accounts thus far.

Although DVI and the trustee, U.S. Bank, have been unable to pinpoint the exact causes of the rapid deterioration in performance, Moody's believes there are two probable causes. First, the heightened financial distress of DVI and its intent to sell its servicing platform is resulting in diminished staffing levels and reduced servicing, collections and work-out activity for the loans. According to U.S. Bank, there has been a significant attrition of employees in the servicing area, and only four collectors are still employed by DVI, down from eight or more that performed this function previously. Second, the liquidity position of some of DVI's borrowers was weakened upon DVI's bankruptcy, since its sister company, DVI Business Credit, provided working capital loans to some of the borrowers in DVI's equipment lease pools, and the flow of these loans was disrupted around the time of DVI's bankruptcy. Although the exact amount of the overlap between the two businesses is not known, DVI has estimated it to be as high as 16-20% across all transactions.

In its current rating action, Moody's also considered the uncertainty regarding the timeliness and effectiveness of an expected servicing transfer from DVI to a successor servicer. On October 17, DVI announced its intent to sell its servicing platform to the highest bidder, with the winning bid scheduled to be announced on November 19 and the transfer to commence on December 15. The time necessary to effectively transfer the servicing depends on the expertise of the winning bidder. In addition, it is unclear if there will be any bids and, if so, whether they would be acceptable to DVI. Even under the most favorable circumstances, the full impact of the new servicer on the collateral performance would take several months to be felt. Until a new servicer is fully in place, servicing is likely to remain weak, resulting in continued high delinquencies and losses.

The notes remain under review with direction uncertain primarily due to open issues related to servicing transfer and the resulting collateral performance. Moody's review will focus on the outcome of the sale of DVI's servicing platform and on the ability of the buyer to service the highly specialized receivables of DVI effectively. In addition, Moody's will continue in its attempt to determine any other factors behind the poor performance of the receivables. A quick and well-executed transfer to a capable servicer may enhance collections and reverse or partially reverse the recent deterioration in the performance of the underlying collateral. In contrast, a protracted servicing transfer could contribute to further deterioration of the collateral performance. Moody's will continue monitoring deal performance, especially with respect to delinquencies, defaults, recovery rates and monthly cash collections.

Moody's current rating actions reflected note balances as of the August 2003 distribution dates, since no principal has been distributed to the noteholders since that time.

This rating action includes the Class A-3 notes of the 2001-1 transaction, which had an outstanding balance of approximately $9.8 million as of the August 11, 2003, distribution date. Although the A-3 notes should be sufficiently collateralized by cash on deposit in trust accounts as well as near-term future cash flow, there is uncertainty with respect to the timing of disposition of conflicting claims on assets that are subject to DVI's bankruptcy.

In addition, Moody's did not downgrade Class D and Class E notes of the 1999-1 transaction, reflecting the fact that the previous downgrades of those securities - to Ba2 and B2, respectively - adequately reflects the risks and uncertainties facing those securities. However, the classes were left on review, with the direction changed to uncertain.

The complete rating actions are as follows:

Issuer: DVI Receivables VIII, L.L.C., Series 1999-1

$25,781,372 Class A-5 Asset-Backed Notes, downgraded to A3 from Aa3, under review direction uncertain;

$439,691 Class B Asset-Backed Notes, downgraded to Baa1 from A3, under review direction uncertain;

$880,381 Class C Asset-Backed Notes, downgraded to Baa3 from Baa2, under review direction uncertain;

$586,254 Class D Lease-Backed Notes, remains rated Ba2, remains under review, direction changed to uncertain;

$734,818 Class E Lease-Backed Notes, remains rated B2, remains under review, direction changed to uncertain.

Issuer: DVI Receivables X, L.L.C., Series 1999-2

$46,957,986 Class A-4 Asset-Backed Notes, downgraded to Baa1 from Aa3, under review direction uncertain;

$800,773 Class B Asset-Backed Notes, downgraded to Ba1 from A3, under review direction uncertain;

$1,600,545 Class C Asset-Backed Notes, downgraded to Ba3 form Baa2, under review direction uncertain;

$1,067,363 Class D Lease-Backed Notes, downgraded to B2 from Ba2, under review direction uncertain;

$1,333,954 Class E Lease-Backed Notes, downgraded to Caa1 from B2, under review direction uncertain.

Issuer: DVI Receivables XI, L.L.C., Series 2000-1

$66,260,734 Class A-4 Asset-Backed Notes, downgraded to Baa2 from Aa3, under review direction uncertain;

$1,128,518 Class B Asset-Backed Notes, downgraded to Ba1 from A3, under review direction uncertain;

$2,258,036 Class C Asset-Backed Notes, downgraded to Ba3 from Baa2, under review direction uncertain;

$1,505,358 Class D Asset-Backed Notes, downgraded to B2 from Ba2, under review direction uncertain;

$1,882,197 Class E Asset-Backed Notes, downgraded to Caa1 from B2, under review direction uncertain.

Issuer: DVI Receivables XII, L.L.C., Series 2000-2

$76,842,342 Class A-4 Asset-Backed Notes, downgraded to Baa2 from A1, under review direction uncertain;

$1,309,625 Class B Asset-Backed Notes, downgraded to Ba1 from Baa1, under review direction uncertain;

$2,619,250 Class C Asset-Backed Notes, downgraded to Ba3 from Baa3, under review direction uncertain;

$1,746,166 Class D Asset-Backed Notes, downgraded to B2 from Ba3, under review direction uncertain;

$2,182,709 Class E Asset-Backed Notes, downgraded to Caa1 from B3, under review direction uncertain.

Issuer: DVI Receivables XIV, L.L.C., Series 2001-1

$9,862,137 Class A-3 Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$107,180,000 Class A-4 Asset-Backed Notes, downgraded to Baa3 from A1, under review direction uncertain;

$1,996,524 Class B Asset-Backed Notes, downgraded to Ba3 from Baa1, under review direction uncertain;

$3,988,957 Class C Asset-Backed Notes, downgraded to B2 from Baa3, under review direction uncertain;

$2,659,305 Class D Asset-Backed Notes, downgraded to Caa1 from Ba3, under review direction uncertain;

$3,326,177 Class E Asset-Backed Notes, downgraded to Caa3 from B3, under review direction uncertain.

Issuer: DVI Receivables XVI, L.L.C., Series 2001-2

$59,767,369 Class A-3 Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$134,536,000 Class A-4 Asset-Backed Notes, downgraded to Ba2 from A1, under review direction uncertain;

$3,310,038 Class B Asset-Backed Notes, downgraded to B2 from Baa1, under review direction uncertain;

$6,625,217 Class C Asset-Backed Notes, downgraded to Caa1 from Baa3, under review direction uncertain;

$4,415,098 Class D Asset-Backed Notes, downgraded to Caa3 from Ba3, under review direction uncertain;

$5,520,157 Class E Asset-Backed Notes, downgraded to Ca from B3, under review direction uncertain.

Issuer: DVI Receivables XVII, L.L.C., Series 2002-1

$193,115,337 Class A-3A Asset-Backed Notes, downgraded to Baa3 from A1, under review direction uncertain;

$72,241,189 Class A-3B Asset-Backed Notes, downgraded to Baa3 from A1, under review direction uncertain;

$4,522,384 Class B Asset-Backed Notes, downgraded to Ba3 from Baa1, under review direction uncertain;

$9,044,768 Class C Asset-Backed Notes, downgraded to B2 from Baa3, under review direction uncertain;

$6,027,635 Class D Asset-Backed Notes, downgraded to Caa1 from Ba3, under review direction uncertain;

$7,539,517 Class E Asset-Backed Notes, downgraded to Caa3 from B3, under review direction uncertain.

Issuer: DVI Receivables XVIII, L.L.C., Series 2002-2

$22,927,265 Class A-2A Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$22,927,265 Class A-2B Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$199,200,000 Class A-3A Asset-Backed Notes, downgraded to Baa2 from Aa3, under review direction uncertain;

$86,000,000 Class A-3B Asset-Backed Notes, downgraded to Baa2 from Aa3, under review direction uncertain;

$5,646,118 Class B Asset-Backed Notes, downgraded to Ba1 from A3, under review direction uncertain;

$11,284,101 Class C Asset-Backed Notes, downgraded to Ba3 from Baa2, under review direction uncertain;

$7,525,446 Class D Asset-Backed Notes, downgraded to B2 from Ba2, under review direction uncertain;

$9,404,773 Class E Asset-Backed Notes, downgraded to Caa1 from B2, under review direction uncertain.

Issuer: DVI Receivables XIX, L.L.C., Series 2003-1

$49,734,342 Class A-1 Asset-Backed Notes, downgraded to P-2 from P-1, under review direction uncertain;

$25,200,000 Class A-2A Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$27,000,000 Class A-2B Asset-Backed Notes, downgraded to Aa2 from Aaa, under review direction uncertain;

$229,620,000 Class A-3A Asset-Backed Notes, downgraded to Baa3 from A1, under review direction uncertain;

$32,000,000 Class A-3B Asset-Backed Notes, downgraded to Baa3 from A1, under review direction uncertain;

$16,036,251 Class B Asset-Backed Notes, downgraded to Ba3 from A3, under review direction uncertain;

$5,411,410 Class C-1 Asset-Backed Notes, downgraded to B2 from Baa2, under review direction uncertain;

$8,484,789 Class C-2 Asset-Backed Notes, downgraded to B2 from Baa2 from A1, under review direction uncertain;

$5,977,062 Class D-1 Asset-Backed Notes, downgraded to Caa1 from Ba3, under review direction uncertain;

$4,713,772 Class D-2 Asset-Backed Notes, downgraded to Caa1 from Ba3, under review direction uncertain;

$8,805,325 Class E-1 Asset-Backed Notes, downgraded to Caa3 from B3, under review direction uncertain;

$1,885,509 Class E-2 Asset-Backed Notes, downgraded to Caa3 from B3, under review direction uncertain.

THE COMPANY

DVI, Inc., headquartered in Jamison, Pennsylvania, is an independent finance company. DVI reported total managed assets of $3.1 billion as of March 30, 2003. Moody's DVI's senior unsecured debt rating was withdrawn on October 17, 2003, due to concern regarding the availability of information necessary to adequately monitor developments following DVI's filing for Chapter 11 bankruptcy protection.

Additional research is available at www.moodys.com

New York
Michael Kanef
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Irina Faynzilberg
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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