American Commercial Capital

Deals: Pending

Proceeds: -

Products: Term loans to restaurant, convenience store and car care sectors

Underwriters: -

"I think there is definitely a shakeout under way which will appropriately assess punishment/reward upon issuers based upon the quality of their loans and programs. Quality can be objectively measured by program guidelines (an adherence to those guidelines) relating to cash flow coverage, collateral, measures taken to ensure security (which involves comprehensive documentation for all properties including leased properties), guarantees, loan-to-cost measurements, entity restrictions, and call protection, among myriad other characteristics. I also believe there will be a big upgrade coming in the amount of regular, detailed, servicing and performance-related information provided to investors to give them insight into what exactly is happening to the credits in each pool, over time.

"Issuers need to demonstrate that they programmatically make sound decisions in the origination process and that they have experience and skill in the loss mitigation process, in the event that a problem arises from time to time. Bench depth and internal expertise are critical factors."

Though American Commercial Capital has been originating franchise loans for more than two years, the company's first securitization of its own assets will likely happen in the next couple of months.

However, the firm's senior management/prinicipals have been part of the sector since the first franchise loan securitization in 1991. They have been involved in franchise loan deals in different capacities: originators, issuers, underwriters, servicers, legal advisors, and wholesale lenders, according to the company.

As an affiliate of Wells Fargo, one of the largest small business lenders in the country, American Commercial could explore various financing alternatives such as securitization, whole sales, syndication and hold strategies.

American Commercial Capital is based in Carlsbad, California.

Amresco

Deals: 12

Proceeds: $1.6 billion

Products: Franchise loans, small business loans, hybrids

Underwriter: Prudential Securities Inc.

"I think the franchise sector will probably have a few more bumps in the road with certain issuers over the next 12 months. That is really driven based on the loose underwriting standards that some lenders had out there in the 1997-1999 time period. It was really driven based on how certain issuers were calculating fixed-charge coverage ratios. Because of that, there were some aggressive loans that ended up getting made and some of those loans were the reasons for some of these downgrades recently and may be the reason for the additional downgrades going forward.

"We really just tell {investors} exactly how it is. Personally, I've been telling investors and ratings agencies that some of these other pools out there will have problems because of the aggressive underwriting standards that our competitors were utilizing.... We are instilling confidence because our business model has always been: being the pioneers of going into less competitive marketplaces where you don't have to be as aggressive, from a lending standpoint, to get business. We have kind of gotten into the small-business lending sector, when everyone else has sort of stayed away from there."

Not considered to be a "traditional" franchise loan lender, Amresco Commercial Finance, Inc., a division of Amresco Inc., typically securitizes a hybrid of franchise loan receivables and small business loans.

Via underwriter Prudential Securities Inc., Amresco will tap the 144A market this week with a $210 million franchise-related hybrid deal. The bonds will be backed by loans from restaurants, truck stops and convenience stores, as well as auto-part stores and health stores.

With its main operations based in Boise, Idaho, seven-year market veteran Amresco Commercial Finance has found that its pools perform extremely well, experiencing losses of just 25 basis points on a cumulative basis - reason enough for it to remain in the securitization market.

Interestingly, Amresco bonds are only sold to the single-A rated levels, a factor that Moore feels differentiates it from other franchise-sector participants.

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