Despite reports that franchise players have curtailed issuance plans this year, some industry experts are hoping to see as much as $1 billion in supply before the year is through - though, nearly half the year is gone and there has been but one deal, a $115 million transaction for the former Amresco Commercial Finance, led by Credit Suisse First Boston (see ASR 4/15/02).
Buyside sources indicate that a deal from a new issuer is in the works, and could hit the market within the next few weeks, though details are vague, other than it might involve a lender to car dealerships.
The good news is that the existing batch of issuers have underwriting models similar to the companies that weathered the franchise storm, typically by relying more heavily on real estate collateral and conservative lending, analysts say.
Textron Financial's postponed deal will likely come in July, sources said. The transaction was set for a 4Q01 launch but was rescheduled after the events of Sept. 11. GE/Franchise Finance Corp. of America is reportedly mulling a deal, and could hit the market in the fourth quarter. CNL Franchise Networks will likely bring its annual deal, as well as Wells Fargo, which previously acquired franchise originator American Commercial Capital. Of course, benchmark dealership issuer Falcon Financial will likely the tap the market as well.
If these deals were all to close, they could bring the market past the $1 billion mark, eclipsing last year's $600 million or so in volume. However, many of the issuers may choose to hold out for better conditions, sources speculated.
The bad news is that traditional enterprise-value franchise is still arguably the worst performing asset class in the ABS universe, marred with lawsuits and high profile bankruptcies. For many of the troubled deals, things are only getting worse. Unfortunately, the headline risk has kept issuers with alternative sources of funding on the sidelines for the past year or so.
"What remains in the [franchise ABS universe] are some originators that are either very credit worthy, or are substantially linked to credit worthy entities, and have various funding alternatives," said Kent Becker of Moody's Investors Service. "The market is distressed right now so some may hold off until they perceive that market conditions have improved."
Last week, Moody's downgraded 13 classes from two Enterprise Mortgage Acceptance Corp. deals, series 1999-1 and series 2000-1. As of the April 15 reporting period, the 1999 deal was approximately 49% delinquent. The principal balance was approximately $243.8 million, with the one-month delinquent bucket at 2.1%, the two-month bucket at 1.1%, the three-month-plus bucket at 23.1%, and the bankruptcy foreclosure bucket at 22.4%. The real estate owned bucket, or real estate owned by the servicer following foreclosure, was at 30 basis points.
Meanwhile, Fitch Ratings took action on two Franchise Mortgage Acceptance Corp. deals last week, series 1997-B and series 1998-B.
Separately, Morgan Stanley released a franchise research update, focusing on recoveries in EMAC and FMAC deals, and finding that, among other things, recoveries averaged 66% of the unpaid balance in the 30 loans the bank looked.