Just as the rate of ABS downgrades is beginning to notably decline, the first dealership franchise-backed transaction - the last remnant of a once-thriving sector of the market - has succumbed to the franchise curse. In fact, the issuer, Falcon Financial, is often touted for its emphasis on underwriting to real estate in conjunction with enterprise value. (It should be noted that other players that once were associated with franchise ABS have opted to align themselves to CMBS).

Moody's Investors downgraded seven classes of Falcon series 2003-1 auto dealership franchise-loan ABS last Wednesday, due primarily to the deterioration of a single loan in the pool. The loan, which makes up 6.8% of the total pool, was made to The Dodge of Midlothian automobile dealership, which has since lost floorplan funding from DaimlerChrysler Financial Services N.A. The transaction priced in January 2003 via Goldman Sachs.

A few days before Moody's action, Fitch Ratings lowered the class E to BB+' from BB', and the class F to CCC' from B'. According to Fitch, the party operating the dealership has filed a complaint against Daimler Chrysler for substantially restricting its ability to stock its floorplan and no longer financing its customers. The borrower, Gorman Family Holdings, owns the real estate, valued at $5.85 million in an updated appraisal. The business value of the dealership was deemed to be $11 billion at closing, for a total loan size of $16.4 million. Fitch expects a 40% recovery.

"The Servicer has confirmed to Fitch that DaimlerChrysler remains very interested in preserving the location and is attempting to identify a suitable operator," Fitch writes.

"The Servicer is attempting to gain control of the real estate as expeditiously as possible without having to foreclose. This should save the trust a significant amount of both time and money, as a foreclosure proceeding would be a long and expensive."

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