Weakness in the convenience store and gas station industry (C&G) finally took its toll on sector benchmark issuer Franchise Finance Corp. of America (now GE Capital Franchise Finance).

Last week Fitch Ratings nicked three formerly triple-A classes of FFCA 1999-2 to single-A, downgrading a total of about a dozen tranches. Both out of the C&G sector, bankrupt franchisees E-Z Serve and Clark Retail Enterprises account for $58 million and $89 million, respectively, in the 1999-2 issuance.

FFCA deals, including 1998-1 and 2000-1, first began showing meaningful stress in August, at which point Moody's Investors Service placed several classes on watch, followed by Fitch in early September.

"It's a bit unfortunate because FFCA has for a long time been recognized as sort of the example or paradigm as to how you're supposed to finance this asset class," said Warren Wells, franchise analyst at Fitch. "Evolving industry dynamics in the C&G sector has caused weakness to develop in some of their deals."

In contrast to many of the problem issuers from the franchise heyday in the late 1990s -which underwrote according to an enterprise value model - FFCA uses a "replacement cost methodology," which, prior to these recent hits, had proved fairly successful. FFCA's earlier deals did not have exposure to the C&G industry, and have not suffered credit troubles.

FFCA has not brought a deal since it was acquired by GE Capital Corp. and renamed GE Capital Franchise Finance last year. The group had considered returning to the market if conditions had improved, industry sources said. FFCA bonds being downgraded could push a sector recovery further into the distance.

As for EMAC...

There's not a whole lot of news on the Enterprise Mortgage Acceptance Co. front going into the New Year. Under the private securities litigation reform act, any time a defendant moves to dismiss, nothing happens until the presiding judge rules on the motions.

The next real event in the litigation concerning EMAC is going to be a ruling on the motions to dismiss from Judge Shirley Wohl Kram of the U.S. District Court Southern District of New York, according to an attorney involved.

Per the September deadline, there was a flurry of motions from the several defendants in what is now referred to by the court as the "EMAC Securities Litigation."

If the motions (or a single motion) is granted, generally the plaintiffs will re-file the complaint amended according to the judge's comments, the attorney said.

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