Bonds from benchmark franchise ABS issuer GE Franchise Finance (formerly Franchise Finance Corp. of America) have finally begun showing signs of stress associated with the industry-wide weakness, as Moody's Investors Service last week placed junior notes from three deals on watch for downgrade.

Prior to the acquisition by GE Capital, FFCA was a regular issuer in the ABS market - hailed as a prudent underwriter and sector darling of sorts - managing to avoid the negative headlines garnered by some of its late 1990's competitors. Moody's announcement marks the first time any FFCA securitized bonds have been on review.

According to the rating agency, the convenience and gas station (C&G) arena has been hit particularly hard. For example, suffering deals from Enterprise Mortgage Acceptance Co. were backed by loan pools with as much as 90% exposure to the C&G sector. FFCA's earlier deals were mostly backed by restaurant loans, which have not had the same level of problems. Moody's is reviewing classes from the later series - FFCA 1998-1, 1999-2 and 2000-1. In its announcement, the rating agency identified G&G concept EZ Serve as one of the troubled borrowers, making up 13.62% of the 2000-1 deal, and 5% and 8.65% of the 1998-1 and 1999-2 deals, respectively.

In the August servicer report, the 1999-2 deal was showing the highest level of delinquencies, at 13.2%, while the 1998-1 and 2000-1 deals were showing 6.1% and 3.1% in total delinquencies, respectively.

"I think that as a sub-sector, the gas and convenience store arena is having significant problems," said Kent Becker, senior vice president at Moody's. "The C&G loans are performing very poorly compared to restaurant loans."

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