J.H. Whitney is said to be winding down the J.H. Whitney Market Value Fund, a collateralized debt obligation that is invested in a mixture of senior secured loans, bonds, warrants, equity and some CDOs. A source said the fund has been suffering from significant decline in the market value of the fund's assets for over a year, leading to failures in the overcollateralization (OC) tests. The losses are not primarily in the loans, another source said. J.H. Whitney officials referred calls to Dan O'Brien, managing director and cfo, who did not return them.
"Given that the fund has an ongoing default, none of the notes below the senior most class may receive current interest payments. Instead, proceeds are used to pay down the senior most notes outstanding," noted a Fitch Ratings report. The class A notes have been paid down completely since April and the class B notes are currently the controlling class, receiving all proceeds to pay current interest and principal. At this time, all interest payments to the class C, D and E notes are blocked. Additionally, the event of default gives the controlling class the right to give the trustee notice of acceleration that would cause a liquidation of all the portfolio assets, and the notes to become due and payable, according to Fitch.
"They are winding down their portfolios and breaching an OC test," said the source, who noted that everything the firm is selling is not being invested in new collateral. She added, however, that it is not a fire sale. "It's a methodical, organized approach," she noted. There is still even some upside that can be captured for the equity holders, she said. The maturity date for the notes was 2006.