Issuance of securities backed by franchise loans dropped dramatically in the first half of 2000 over 1999. Only two securitizations were completed in the first half - Enterprise Mortgage Acceptance Corp. (EMAC) and Captec Financial Group - compared with over ten transactions in all of 1999. In addition, two regular issuers - Atherton Capital and Franchise Mortgage Acceptance Corp. (FMAC) - utilized the whole loan market in the second half in lieu of the securization market.
Two reasons led to the significant reduction in volume. First, the subordinate tranche market was weak (particularly for longer-term securities) in the first half of 2000 with historically wide spreads relative to treasuries. In most franchise loan securitizations, a commercial mortgage-backed securities-type structure is employed in which a trust issues securities ranging in ratings from triple-A to single-B. In a turbulent subordinate market, selling sub-investment grade classes is difficult at perceived reasonable interest rate levels, making securitzation uneconomical for some issuers.