Scrutiny and assessment led to discovery of over $25 million in reporting issues

Financial services
Client challenge
Errors in securitization reporting
Services provided
Securitization reporting testing, due diligence
Grant Thornton LLP was retained by a guarantor of public finance and structured finance obligations, who insured senior notes issued by a Yellow Pages publisher. The management of the Yellow Pages publisher, at the time, was being performed by a related entity, which experienced a bankruptcy and a high level of staff turnover. These circumstances, combined with the declining performance of the securitization, caused the guarantor to employ a heightened level of scrutiny around the securitization reporting.

Grant Thornton was initially hired to perform testing procedures on the monthly and quarterly reporting statements issued to noteholders of the securitization in order to assess the accuracy of cash collection and expense amounts that were being reported.

During the engagement, our role expanded to become advisers to the guarantor in connection with the related entity’s bankruptcy proceedings when the related entity sought to amend certain terms and conditions of their agreements with the Yellow Pages publisher.

After the bankruptcy proceedings were concluded, our role continued to expand as advisers to the guarantor, where we assisted them in assessing various strategic alternatives and performing financial/tax due diligence services in connection with the Yellow Pages publisher.

Services included:
  1. Securitization reporting testing — Performed several testing procedures in order to (1) understand the cash collection and expense payment processes, and (2) assess the accuracy of how those amounts were subsequently reported in the periodic reporting statements issued to noteholders of the securitization.
  2. Assisted negotiations — Brought in team members who specialize in bankruptcy and restructuring to provide guidance on the renegotiation of certain key contracts with the related entity.
  3. Strategic alternatives/due diligence — Worked hands-on with management to determine feasible servicing alternatives. This included pursuing parallel paths of (1) managing a formal request for proposal and evaluating the various responses, and (2) evaluating current management’s proposal and business plans to insource operations that have historically been outsourced. For each viable alternative, assessing the aggregate impact to securitization cash flows was crucial.

The team identified over $25 million in reporting issues, which led to inappropriate residual distributions and improper subordinated note payments. In addition, the guarantor was able to renegotiate key contracts affecting the securitization and obtain a net recovery of approximately $12 million to the securitization. Lastly, we were also able to facilitate a one-year extension of the current contracts with the related entity to maximize short-term securitization cash flow, while continuing to seek and advise on long-term alternatives.