NEW YORK - GE Facilities Finance, an operating subsidiary of GE Commercial Finance, scored star billing at last week's Hot Topics seminar hosted by Standard & Poor's. GEFF was the primary originator for this year's $400 million GE Business Loan Trust 2003-1, which priced in June via Goldman Sachs and Wachovia Securities.
Bruce Nelson, president and general manager of GEFF, said after 40 face-to-face meetings with investors, the deal was oversubscribed.
GEFF's deal was billed as innovative for its real estate intensity, stripping much of the risk out of a loan going belly up, presenters said. GE Facilities Finance provides loans for single tenant owner-occupied commercial real estate. As such, the deal used both business value and CMBS methodology.
GEFF was intrigued by the idea of SME securitization, Nelson said, because of the regulatory and accounting pressure for GE to decrease funding reliance on Edison Asset Securitization.
Though it may not technically fall under the umbrella of a new type of asset (its uniqueness lies in its process, not its product so much), GEFF's SME deal breaks some new ground.
S&P approached the transaction uniquely, melding two methods for ascertaining the deal's creditworthiness - in other words, it is a hybrid of a small-business deal and CMBS.
Often, real estate securitizations are assessed by the real estate itself, especially in larger transactions where the owners lease out the land to another party. Creditors will concentrate their analysis on the recovery value - i.e., if the loan goes sour, how much is salvageable by the lien on the property. But in real estate securitizations where the owner occupies the land, creditors would look at the cash flows of the owner's business to support the loan.
In assessing the creditworthiness of this deal, S&P generated gross default and recovery levels for both an owner-occupied (looking solely at the business) and a non-owner- occupied (looking only at the real estate) scenarios. S&P believes a bifurcated analysis will give the $400 million transaction a more accurate indicator of its creditworthiness.
"This is the first time we have presented a pool that has two subsets, which is unique in how people assess the creditworthiness of this type of deal," said Weili Chen, director in the structured finance group at S&P.
This twofold process has not been done before but, according to Chen, it is entirely possible that S&P's viewing of the mixed portfolio will catch on.
According to GEFF, the capital markets are eagerly anticipating its next SME real estate securitization, suggesting its approach was well received.
GE has every intention of establishing itself as the benchmark for this market.
Rated triple-A, GEFF has originated $2.5 billion in new loans this year and expects to exceed $3 billion by year's end.
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