Assignments

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These assignments do not represent a complete list of the Firm's experience, but rather provide a sample of SA LLC's previous engagements. Current projects are not listed.

Trust Company of the West / Milbank Tweed:

Sperlinga Advisory was asked by TCW [a large, Los Angeles-based money manager], to perform due diligence and a valuation on a portfolio of timeshare loans. The project involved the following steps:

i. Analysis of background data of the loans, so that we could derive appropriate assumptions to use in our projections going forward;

ii. Choice of a sample of the loan portfolio upon which to perform physical due diligence;

iii. On site due diligence, where we collected additional information regarding the loans. The Firm sub-contracted with a firm for 3 Spanish-speaking underwriters who traveled to Mexico City in order to perform the physical due diligence. Virtually all of the physical due diligence material was in Spanish.

iv. Preliminary analysis of the loans comparing the loan portfolio offered to TCW by Raintree with the portfolios Raintree offered other lenders. We determined if TCW had been adversely selected with respect to the loans Raintree proposed to provide.

v. Valuation of the loan portfolio Raintree had offered to post as collateral. Sperlinga Advisory performed sensitivity analysis using a computer cash flow model to show how the collateral would perform over different interest rate, exchange rate and credit environments.

Dynex Bondholder's Committee / Arnold & Porter:

Sperlinga Advisory was retained by Arnold & Porter, attorneys for the Dynex Bondholder’s Committee. The Committee was proposing an exchange offer to the management of Dynex, a REIT based in Glen Allen, Virginia.  The exchange offer would take the Committee’s debt and exchange it for debt with different characteristics. Generally, the Committee was made up of large, institutional bond investors.

Arnold & Porter in Washington retained Sperlinga Advisory to perform due diligence on Dynex, analyze their portfolio and give its opinion as to whether the Dynex portfolio could payoff the bonds after the exchange offer. The major assets of Dynex were manufactured housing residuals, where Sperlinga performed a comparison of the Dynex collateral across different issuers, to derive reasonable default and loss severity assumptions. Dynex also had a wide range of other residual assets from transactions backed by sub-prime auto loans, non-performing mortgages, and poorly performing commercial mortgages securitizations. In all, the Dynex portfolio was one of the most complex and illiquid collections of securities we had ever studied.

The Committee put Sperlinga under time pressure to complete its assignment to allow the exchange offer to go through. Our conclusions were that while there was sufficient value in Dynex to pay the new bonds, that value would not be realized to assure timely payment of interest and principal, under the assumptions we were given.

ACE Ltd. / The Clayton Group:

Sperlinga Advisory assisted The Clayton Group and ACE Ltd. [a Bermuda-based insurer] in risk analysis during ACE’s acquisition of CapRE [a US-based re-insurer]. CapRE had re-insured the risk of monoline bond insurance companies [e.g. MBIA, FSA] assumed in their insuring mortgage and asset-backed securitizations. ACE was interested in our understanding and valuing those risks.

Bond insurers assume portions of the default risk of securitizations of many types of loans [including student loans]. Often, the bond insurers find it prudent to re-insure that risk with re-insurers like CapRE. CapRE was active in the mortgage and asset-backed bond re-insurance market, so that the key to understanding that company was understanding the value of those risks.

The main issue we analyzed was whether CapRE had sufficiently reserved against these mortgage and asset-backed exposures. We worked with a team of actuarials who were expert in the area of insurance regulation and the appropriate levels of reserves for given risks.

Because this was in connection with a merger, our team was under a significant time pressure. Our objective was to deliver recommendations and answer questions directly from the ACE Board of Directors. We focused upon CapRE list of closely monitored credits. This list would be similar to a rating agency watch list of issues they re-insured, but where the performance of the collateral or other events [e.g. bankruptcy of the issuer / servicer], might trigger a claim to be paid. With those credits, we evaluated whether the amount reserved by CapRE was sufficient to pay claims against expected losses.

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ACE Ltd. / The Clayton Group: (Continued)

Because of the time pressure, we were unable to model each of these credits individually. Using data CapRE had collected as to insurance exposure, transaction structure, current delinquencies, historical defaults and associated losses, we estimated whether CapRE would face a claim and what the magnitude of that claim would be. There was one case where a series of issues were placed on the list of closely monitored credits, but where we did not agree the situation justified them being there (in other words, the credits were better than CapRE had thought).

We also reviewed credits which were not on the list of closely monitored credits. In some cases, the situation at an issuer warranted a particular set of issues to be on the list of closely monitored credits. In those cases, we recommended to ACE that those credits be added to the list of closely monitored credits. In one example, a troubled issuer / servicer was in the process of being acquired by a larger, well capitalized financial institution. We recommended the issues serviced by the troubled issuer / servicer go on to the list of closely monitored credits until the merger transaction closed. After we made this recommendation, the merger transaction failed, increasing CapRE’s exposure. We presented our findings to the Board of Directors meeting in Toronto, Canada. Our recommendations were accepted and the ACE / CapRE merger eventually proceeded.

Chanin Capital Partners / Comdisco:

Sperlinga Advisory analyzed a portfolio of leases on behalf of the Comdisco Equity Committee and their advisor, Chanin Capital Partners.

Comdisco is an equipment leasing company which entered bankruptcy in 2001. Chanin Capital Partners was retained to protect the interest of the stockholders of the Company. Specifically, Sperlinga Advisory’s role was to analyze and value the equipment lease assets, to assure the disposition or retention alternatives being considered by the Company’s management were fair to the equity holders.

SA LLC analyzed three main equipment leasing portfolios, covering everything from personal computers to silicon chip fabrication equipment. This assignment had some characteristics which were typical of many of our valuation assignments:

i) Both performing and non-performing assets were present in the portfolios;

ii) Evaluation of the portfolios as a function of alternative uses [in this case, sale or re-starting of the business]; and

iii) A sub-set of the assets had unusual characteristics, posing another risk [in this case, currency risk in the leases not originated in North America].

The results of our valuation were used by Chanin Capital Partners to make recommendations in the bankruptcy proceeding as to how these lease portfolios should be treated.

Myerberg & Co. / US Small Business Administration:

Sperlinga Advisory analyzed, and assisted in both the valuation and sale of a pair of US Small Business Administration’s loan portfolios. SA LLC worked for Myerberg & Co., a woman-owned broker-dealer, who acted as the transaction financial advisor for a pair of these SBA asset sales (Sale #4 and Sale #8).

Together, these portfolios contained tens of thousands of loans, representing close to $2.0 B of face amount. Sperlinga Advisory’s role began with analysis of the tape information provided by the due diligence contractor throughout the sale process. Updated analysis SA LLC provided was re-distributed to the bidders on the loan portfolio as updates were received. In this way, the team kept the bidders apprised of changes in the portfolio.

The portfolios provided challenges in terms of diversity. Included in the SBA sales are unsecured loans, commercial and residential loans. The amount and quality of the data from loan group to loan group varied widely.

There was also a requirement for the loan portfolio to be valued at certain points prior to the sale. Sperlinga Advisory’s role was to handle the valuation of the non-performing assets. We created a model which would value residential, commercial and unsecured non-performing assets. These valuations were presented to the SBA and to the Office of Budget and Management.

Sandler O'Neill / Avondale Federal:

Sperlinga Advisory was retained by Sandler O’Neill Mortgage Finance L.P. to assist in valuing certain residual interests in connection with a bank merger. Avondale Federal [IL] had a significant asset on their balance sheet in the form of a portfolio of four residuals off of HELOC securitizations.  Valuation of these assets was critical in completing the merger.

Working in connection with Sandler O’Neill professionals, Sperlinga Advisory valued the residuals and provided analysis to be used in connection with the merger. We also maintained surveillance of the residual portfolio between the initial merger agreement and the closing of the transaction. The merger price would be adjusted, depending upon the performance of the residual portfolio, as measured across several parameters. Sperlinga Advisory evaluated the parameters and revalued the transaction at points between agreement and closing.

At closing, we produced final valuation analysis, which governed the price paid for that portfolio of the Bank.

CS First Boston:

Sperlinga Advisory was retained by the High Yield Group of CS First Boston.  CSFB was attempting to value certain mezzanine bonds of United Companies Financial Corporation (“UCFC”), a Baton Rouge, Louisiana mortgage banker. UCFC was in Bankruptcy at the time, and had four assets which backed the debt holders bonds: i) loans that the company had difficulty selling; ii) servicing rights and advances; iii) a residual portfolio; and iv) other balance sheet items. CS First Boston wanted to understand quickly the value of UCFC’s assets, to develop a trading strategy for their bonds. As such, the assignment was completed under considerable time pressure.

We analyzed the residuals and servicing rights first, as those were the largest assets of the Company. We performed sensitivity analysis around our base case assumptions, allowing us to provide ranges between which we thought the company was worth.  We located an individual who had been the interim CFO of the Company to assist CS First Boston in understanding the other balance sheet items.

In all, we were able to provide a picture of enterprise value to our client and perspective a to what their bonds were worth. As a coda to the assignment, CSFB retained another advisor after our assignment was complete, to verify our work. The other adviser reached conclusions very similar to ours.

Couzens Lansky / MCA Creditors:

MCA was a Michigan-based mortgage banker which had gone bankrupt in the late 1990's. Couzens Lansky (a Michigan-based law firm) represented a pension fund (hereafter, the “Plan”) who was a MCA creditor. The Plan’s credit accommodations were collateralized with mortgage residuals.

Sperlinga Advisory performed residual portfolio valuation, in connection with the bankruptcy proceeding. The valuation included a detailed report containing SA’s results, methods, assumptions, etc. The valuation was not challenged by the other MCA creditors, even though our valuation was a small fraction of the previously accepted value.

Nikko Securities International:

Sperlinga Advisory acted as a residual sale advisor for Nikko Securities International (“NSI”). NSI was a Japanese-owned broker-dealer based in New York. They had taken back a portfolio of residuals from one of their customers, who had borrowed from NSI, using the residuals as collateral. As the borrower was unable to repay NSI, they retained Sperlinga Advisory to market and sell the residuals.

We accumulated primary source descriptive material on each of the 3 residuals involved in the sale [e.g. offering documents, pooling & servicing agreements, etc.], so that prospective bidders could perform independent analysis on the securities. Summary descriptive material on the residuals offered was prepared and, along with the primary source material noted in the previous sentence, was distributed to likely interested parties.

These residuals were backed by poorly performing, sub-prime loans, where there had been previous evidence of fraud. As such, the residuals were among the most illiquid instruments we had ever seen. Furthermore, the residuals were generating tax liabilities for NSI at a time when the parent company in Japan wished to radically scale down their presence in the United States.

After the sale packages were distributed, Sperlinga Advisory answered bidder's questions and verified certain of their analysis through our own models of the residuals. We were able to obtain a bid acceptable to NSI, reliving them of the residuals and the ongoing tax liability.

Cendant Mortgage / WM Daugherty:

Sperlinga Advisory was retained to structure a series of bonds backed by so called “scratch and dent” loans. These loans were not necessarily made to poor credit borrowers, but had some characteristic which made them unacceptable to GNMA, FNMA or FHLMC. Document deficiencies were often the reason for their unacceptability.

These loans were aggregated by Cendant Mortgage, a large New Jersey based mortgage banker. W.M. Daugherty who was assigned to create the securitization, retained Sperlinga Advisory for the actual structuring of the bonds. We were provided with collateral tapes of what Cendant wanted to securitize. We performed analysis to be used in the rating agency process. As one might imagine, the Cendant portfolio included loans with a wide array of mortgage characteristics [e.g. fixed and floating, Federal and state insured, balloon and relocation, etc.].

Sperlinga Advisory produced yield tables for the marketing of the bonds, as well as the decrement tables used in the legal offering documents. We also provided Cendant analysis of the residual, first-loss and mezzanine securities they retained.

RYMAC Mortgage:

Sperlinga Advisory serves as the advisor for Sperlinga Capital Inc., an investment vehicle which purchased residential mortgage residual interests [and associated liabilities] from RYMAC Mortgage, a Real Estate Investment Trust.

RYMAC was exiting the mortgage business and needed small items removed from the balance sheet. Using partner capital from Sperlinga Advisory, Sperlinga Capital purchased the residuals subject to the liabilities in 1996. Periodic payments needed to be made to NVR, Inc., a Virginia-based home developer, on three residuals where the liabilities were owed. Sperlinga Capital made all of the payments in full and on time.

Sperlinga Advisory also executed the underlying call rights associated with three of the residuals. Working with the Trustee and a broker-dealer, Sperlinga Capital arranged for the sale of the underling FNMA pass-throughs at a premium and paid off the bond holders in full.

The Sperlinga Capital Inc. / RYMAC transaction is an example of how Sperlinga Advisory applied capital to achieve a client’s goals, and at the same time, generated good value for our Firm.

GSE Bank:

Sperlinga Advisory assisted a US Government Sponsored Enterprise ("GSE") bank by providing an independent valuation of certain mortgage securities which had been considered "Level 3" assets under the Financial Accounting Standards Board's Statement No. 157. The valuations occurred over a 3.5 year period.

These securities were backed in certain cases with second lien residential loans and were insured in certain cases by distressed bond insurers.

AEGON USA Investment Management: (Continued)

iv)    We obtained a sample portfolio of sub-prime ARM loans available for purchase. We evaluated this purchase portfolio using the final estimates for defaults, losses and voluntary prepayments. We incorporated hedges to take into account the fact that Aegon’s liabilities to fund the loans were entirely LIBOR-based and the sub-prime ARM loans were fixed for the first two years of their life.

v)    We determined the risk-adjusted return for various prices at which we could purchase the sample portfolio. These returns (adjusted for the hedging costs) were compared to Aegon’s hurdle rates of return to determine whether the sub-prime ARM loans represented a suitable transaction.

Given that the offered price of the portfolio did not meet Aegon’s hurdle returns, we determined where price would need to move in order for the transaction to be suitable for Aegon.

US Department of Labor - Office of the Solicitor:

Throughout the mid-1990’s [with our most recent assignment ending in 1999], Sperlinga Advisory has been involved with the US Department of Labor – Office of the Solicitor with what was called the Derivatives Project.

In the cases upon which SA LLC worked, the US DOL was involved in the prosecution of cases under ERISA (generally, involving pension plans) and the Taft-Hartley Act (generally, union funds). Sperlinga Advisory served the DOL through several investigations, in which mortgage-backed securities were involved. The firm acted in the capacity of an investigative expert. Such an expert works with both investigators and DOL attorneys to assist them prior to charges being filed, and included:

i) Performing forensic financial analysis to determine the prudence of a particular money managers past actions;

ii) Performing similar forensic analysis to determine suitability of certain securities;

iii) Sitting in depositions to assist DOL attorneys with witnesses who may have provided technical answers;

iv) Provided advice to DOL attorneys as to possible defenses of money manager actions they might face; and

v) Authored reports that summarized findings with respect to all the above mentioned points.

Because investigations involved participants who had not been charged with any crime, Sperlinga Advisory operated in an environment of strict confidence.  As such, we cannot provide any details as to the assignments upon which we worked.