Rapid Amortization Doesn’t Help When There’s No Cash

Investors are facing extraordinary losses in Local Insight Media’s whole business securitizations.

This short “Judicious Note” highlights the rating actions S&P took with respect to these notes this week and, more importantly, its related comments (“Local Insight Media Finance LLC Series 2007-1 And 2008-1….”, published 11-Dec-2012).

S&P’s comments on the state of these securitizations illustrate their deterioration:

“…the reduction in cash flows has reached the level where the interest reserve account is being utilized to make full interest payments. Although the deal has been in rapid amortization, there has not been enough cash flow to pay down principal since December 2011.  The interest reserve has dropped to $5.27 million from its initial balance of $11.99 million.  In the event the outstanding series continue to receive the same level of cash flows and expenses remain where they are, the deals will completely empty the reserve account in the next three quarters, resulting in an interest shortfall…” (emphasis mine)

S&P further noted that the following principal balances remain outstanding as of the 10-23-12 quarterly servicer report:

  • ~$498.4 million of the $547 million in original 2007-1 Class A-2 principal balance,
  • ~$183.8 million of the ~$195 million in original 2008-1 Class A-2 principal balance, and
  • ~$109.4 million of the 2008-1 Class B principal balance.

No comment was made with respect to the status of the original ~$126 million 2007-1 Class B notes.

With this rating action, S&P downgraded the 2007-1 Class A-2 and 2008-1 Class A-2 notes from ‘CCC+’ to ‘CC’ and affirmed the 2008 Class B notes’ ‘CC’ rating.

A “Judicious Focus” blog post first published on this site last month provides a more in-depth overview of these Local insight Media whole business securitizations (“A Bad Whole Business Securitization”, http://judiciousadvisors.com/a-bad-whole-business-securitization/ ).

These securitizations have insufficient cash flow to even cover interest.

With over 90% of each class’s original principal still outstanding and no pay down of principal this year despite both issues being in rapid amortization, it looks like note holders are facing extraordinary losses on their holdings.

Judicious Note
By Avi Oster
Managing Director
Judicious Advisors LLC

Posted 12-14-12

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