Enterprise Mortgage Acceptance Corp. will break the $1 billion mark, pending the company's fourth franchise-backed securitization, set to price within a week, said President and Chief Executive Officer Ken Saverin.
The $212 million deal will be structured under Rule 144A, and separated into tranches, ranging from the triple-A senior notes to single-B subordinates. Morgan Stanley Dean Witter will be lead manager.
Though only in business since 1996, with a market debut in 1998, EMAC has established itself as a premier lender and issuer in the franchise sector. The company is the first-of-its kind to deal exclusively in a market dubbed "C&G", which includes car care-type properties, quick-lube service facilities, and convenience stores.
"We were the first lenders in the franchise sectors to go into the convenience store industry," said Saverin. "And that was a major innovation, to explore this sector. And than to deliver $1 billion of that product to the market, in a short time, is very significant."
A Private, Well Capitalized Company
Saverin characterizes EMAC's loan performance as excellent. "Our ratings consistently reflect strong credit quality of the product that we bring to the market," Saverin said. "We are considered by the industry to be the premier lender and, consistently, we have been able to attract the best operators and therefore the best borrowers in our asset class."
Currently, loans to operators of top concepts (or chains) - such as Exxon, Texaco and Mobile - account for 90% of EMAC's portfolio, Saverin said.
Unlike many issuers in today's asset-backed market, Westport, Conn.-based EMAC is not only privately owned, but owned, in majority, by another private company. Double-A-plus rated Koch Industries, the second largest privately held company in the United States, and the largest independent refiner of petroleum, is the majority investor in EMAC. Travelers Insurance Company, along with EMAC's management, account for most other investors, said Saverin.
In terms of growth and quality of product, an affluent backing has many advantages.
"We are an extremely well capitalized company, with very strong partners," Saverin explained. "And it is a different way to approach the financial services business, as opposed to many competitors who are very thinly capitalized."
The capitalization gives EMAC more flexibility and choices as a company. "Both customers as well as bond buyers have gotten comfort from this," Saverin said. "We are in a position to exercise tremendous discipline in the way we operate our business, and I think that is an important distinction."
EMAC does not have to make a loan to stay profitable, nor does the company need to securitize, Saverin said. A strong backing has also allowed EMAC to be very consistent in market delivery, a rare trait among franchise issuers, Saverin explained.
"I think that in the three or four years here, we have been able to consistently deliver the product that we have promised the market," he explained. "And I think the delivery of that promise is something very different than a lot of the people we compete against."
EMAC was one of the only franchise lenders able to originate loans in the turmoil that plagued last fall's capital markets. The company was able to originate over $300 million in that stretch, "when most other lenders were either out of business or weren't making loans at all."
EMAC's most recent deal, a $212 million C&G loan-backed transaction, priced in the spring. The company's largest deal, which was placed in 1998, was worth $404 million.
Though it is against policy to comment on the execution of deals, Saverin did say, "In the two prior deals that we have brought to market, we have sold all of the bonds from the triple-A through the single-B, as well as the IO, and we, EMAC, have retained the unrated piece and the servicing strip."
He added that both deals were oversubscribed.
The Virtues of Focus
Another advantage to being well funded, Saverin explained, is that it allows EMAC the time to fully explore new ventures.
"When we go into a new asset class we generally study it for a year before we even try to originate a loan in it," Saverin said. "We have an extensive internal due-diligence process before we go into a new product or asset class."
As part of the company's philosophy, EMAC tries to stay very focused in both the franchise industry and the products EMAC's delivers.
"We think our industry focus helps us to understand our borrowers as well as to underwrite stronger credit," Saverin said. "I also think we provide excellent customer service to our customers, which we believe is a value-added service to our core product which we think makes us a preferred lender."
However, he explained, this same focus keeps EMAC's growth in check. "We're not trying to be all things to all people," said Saverin. "We're consistently and selectively expanding our application and our knowledge base, but not trying to jump into another asset class just for the sake of jumping in."
EMAC will probably add a new, related asset class in the year 2000, Saverin said, though he offered no details.
As of yet, EMAC has not entered the public market; however the company might head that way going forward. At this point, the company has found the private market to be a fairly efficient way to market C&G loan-backed bonds. It's mostly a regulatory issue, Saverin added.