Franchise ABS, which has all but disappeared this year, will see its first two term deals before the end of July, according to industry sources.

Via its real estate investment trust (REIT) called CNL American Properties Fund, CNL Financial Servicers is preparing a $150 million to $200 million, five-year floating rate note offering, which it will bring to market in July, according to a company source. Banc of America Securities will be lead manager.

The deal is backed by triple-net leases, where the tenant is obligated to pay maintenance, taxes and insurance. In these deals, the issuer had purchased the properties from its borrowers, then leased them back. This is the second time CNL has issued sale-lease backed notes, the first being last August. The company has also issued traditional franchise loan-backed securities.

U.S. Restaurants Properties, which will be a first-time issuer in the asset-backed market, is preparing a deal similar to CNL's net lease transaction, a market source said. USRP is also a REIT. It is said that deal is being done to refinance the company's existing credit facility.

Bank of America is also managing USRP. USRP is a publicly traded company (USV) located in Dallas, TX.

Still a tough market

While the prospect of two deals sheds light on the sector, the ongoing credit events have done serious damage to the market.

"I think a lot of strong, long-time issuers have been punished by the acts of their competitors," said a sellside source. "The market tends to overreact in bad situations, so we're hoping that it's going to settle down towards the second half."

Meanwhile, several series from Franchise Mortgage Acceptance Corp. (FMAC) trusts were further downgraded by Fitch last week. The downgrades of notes from FMAC 1996-A and 1998-C were associated with the liquidation of Tacala North Loan, which caused a $9.8 million write-off in the 1996-A trust.

The 1997-B pool, which is currently in the 40% default range, was also downgraded, though not in association with Tacala North. According a source following FMAC, this pool has exposure to troubled loans to franchisers of Golden West Taco, Duke & Long, Southern Retailers, and Burger Buster.

CNL's pending franchise deal is not to be confused with the $100 million, CNL Funding small business deal currently in the market. That transaction is being managed by First Union. Although both deals are being brought by subsidiaries of The CNL Group, the companies act as separate entities, a source close to the transaction said.

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