Proceeds: $544.5 million
Products: Franchise loans, net lease properties
Underwriters: Merrill Lynch, Prudential Securities, Banc of America Securities
"I think the franchise receivables sector will continue to be fairly strong. The question I have in my mind is the availability of capital as the franchise sector has lately been under scrutiny. I think that the lenders themselves have to stick to very stringent underwriting standards and not compromise for the sake of volume. They have to recognize that there are elements of risk that have to be mitigated and structure the transactions accordingly.
"We don't know what to anticipate because what has happened in the marketplace recently with the downgrades of a couple of issues, that's going to have a destabilizing effect on the marketplace. We think it's going to limit the ability of issuers to bring deals to the market. We think also that we are going to see a consolidation of issuers. There will be a number of alliances, mergers and acquisitions take place, all of which are underscored by the issue of capital availability."
Expected to break new ground this quarter, Orlando-based CNL American Properties Fund is prepping a $283 million deal that will include assets from net lease properties. This innovative deal, backed by properties that are actually owned by the company, will mark the first time that a whole class of net lease properties is brought to market. The transaction, set to close in July, will be managed by Banc of America Securities.
CNL has been active in the franchise sector since 1978, initially starting as a lease provider. The company started exploring options in the debt markets in 1996. Currently, CNL's pools are doing well and have not experienced any payment defaults.
According to CNL, to instill investor confidence, it uses two different techniques, the first one being its solid track record that stems from its lengthy participation in the sector. Secondly, CNL continues to own its own subordinate piece in transactions, a tactic the company feels helps to assure investors of its long-term involvement in the respective transactions.
Proceeds: $1.1 billion
Products: loans to convenience stores and car-care service franchises
Underwriter: Morgan Stanley Dean Witter
"We believe that investors continue to view the franchise sector as an attractive investment. Nevertheless, beginning in late 1998, several investors and rating agencies began to tier different issuers based upon several factors such as capitalization, underwriting integrity as well as servicing and asset management capabilities. Recent events in the industry have emphasized this scrutiny of individual issuers.
"At EMAC, we welcome the opportunity to present our case. We have been fortunate that our deals have consistently received a strong reception in both good and bad securitization markets. We have tried to take the approach of an open dialogue with investors so that they can get a sense of not only the quality of our deals but also a sense of our approach to business. We think that it is important that investors understand how we apply sound business judgement. We believe that this interaction imparts confidence as to the integrity of our company. In the end, we think that investors invest in people as well as deals."
Enterprise Mortgage Acceptance Corp. is one of two franchise issuers that has completed a securitization this year (Captec Financial Group was the other). The company, in operation since 1996, was the first-of-its kind to deal exclusively in car care-type properties, quick-lube service facilities, and convenience stores.
While the company considers alternative sources of funding, EMAC remains committed to the securitization market as a consistent and dedicated issuer.
The Westport Connecticut-based company is owned, in majority, by Koch Industries, the second largest privately held company in the United States, and the largest independent refiner of petroleum. Travelers Insurance Co., along with EMAC's management, account for most of the other company investors.
EMAC has successfully completed three securitizations totaling approximately $1.1 billion since it began operations in 1996. According to the company, EMAC is the only franchise issuer since 1998 to have sold subordinated bonds through its original bond issuance.