Wachovia Securities is pre-marketing a $125 million small business loan backed ABS, originated by CNL Commercial Finance, for a potential pricing this week. The two tranche, Aaa/AAA and A2/A (MDY/S&P) rated deal is benchmarked over one-month Libor. The assets are conventional small business loans made to small business concerns.
Although similar to Small Business Administration (SBA) loans, these loan receivables will not have any insurance or guarantee via the government agency. Rating sources note that CNL has strong underwriting standards and servicing capabilities. In addition, the firm's past small business loan ABS deals have shown minimal deterioration despite the weakened economy, in many cases outperforming its peer group. Different than past deals, this CNL issue has no fixed-rate loans and a higher percentage of Libor indexed loans, reducing basis risk, and making the excess spread in the issue more stable. Fluctuations in Prime/Libor spread can decrease the amount of excess spread available in the deal for incremental credit enhancement.
The average principal loan balance is $721,704 with a heavy real estate component, and 100% of the pool secured by first liens of commercial real estate property. The top three industries represented are hardware (4.74%), signs and advertising (4.49%), and legal services (4.25%).