Deals: 5 private placements, followed by 10 Rule 144A deals.
Proceeds: exceeding $2.3 bil.
Products: loans to small businesses, national and regional franchise restaurants, convenience stores and retail petroleum operators
Underwriter: Credit Suisse First Boston
"With the recent transactions that have resulted in downgrades, the investment community has taken a step back to assess their current levels of risk, as well as the asset/investment class as a whole. Upon a thorough review of the fundamentals, while some changes in structuring may occur over time, the asset class will still prove to be a viable and sound investment. Loans to solid concepts, made to successful operators with appropriate leverage are saleable in any format, including securities.
"The franchise sector has grown and changed substantially over the past 10 years. Underwriting and deal structure continues to evolve - and with the current credit environment, these structures are much more conservative now than they have been even as recently as 1998. The market will reward operators and issuers that embrace sound fundamentals, retaining value in their businesses, building equity to provide cushions to soften inevitable fluctuations that occur in the business cycle.
"Because of the recent movements of the capital markets that have put the franchise asset-backed market in a temporary hiatus, franchise financiers that have a balance sheet to hold their origination volumes will fair better for their clients and themselves. Once the market's current cautious mood changes, these stronger balance sheet players will be in a position to realize stronger values and substantial profits resulting directly from their patience, consistent quality underwriting, and balance sheet capacity."
Often credited as the industry's pioneer, Franchise Mortgage Acceptance Corp. has been involved in the franchise sector since 1991, and has completed more transactions than any other issuer.
Acquired in 1999 by Bay View Capital Corp., FMAC's servicing portfolio currently exceeds $3.4 billion.
FMAC balances its securitizations with whole loan sales, and has been out of the ABS market since late 1998. Interestingly, FMAC managed its own on-balance sheet transaction in April of this year, securitizing approximately $270 million in assets.
Like other issuers aiming to restore investor confidence in the sector, FMAC emphasizes its commitment to pool disclosure, issuing reports beyond the minimum requirements.
FMAC is headquartered in Los Angeles and has regional offices in Atlanta, Dallas, Denver, Greenwich, Costa Mesa and Morristown, N.J., with local offices in other states across the country.
Proceeds: $154 million
Products: loans to restaurants, loans to gas stations and convenience stores
Underwriter: First Union
"Investors must realize that lending institutions have been providing loans to multi-unit operators of chain restaurants as well as multi-unit operators of convenience stores and gas stations for many years prior to the emergence of the securitization markets. The credit performance of the franchise-lending sector has been stellar for over 20 years prior to franchise loan securitizations taking place, albeit the loans have been primarily in the hands of the traditional portfolio lenders.
"Franchise lending did not come into vogue simply as a result of the securitization markets, which is in contrast to the 125 LTV sector or other types of sub-prime consumer lending which were made possible as a result of securitization. Franchise loans are commercial loans to multi-unit businesses with strong historical cash flows and operator experience. Whether a loan is securitized or held within a portfolio, credit problems have historically always occurred and will continue to occur for a variety of reasons. However, it is the servicers' ability (and their incentive through carried interests) to efficiently effectuate a loan assumption in a workout scenario that ultimately leads to the continued strong historical credit performance of the sector.
"One of the most counter productive forces facing the franchise lending industry today comes from the industry itself. Lenders who attempt to gain a competitive advantage by consistently bashing the competition (which is defined as those dedicated lenders committed to the sector) only serve to build investor uncertainty across the whole asset class. There should be a focused effort among lenders to standardize underwriting and documentation procedures in an effort to give investors greater comfort and create more liquidity in the sector."
Peachtree Franchise Finance, LLC is an Atlanta based commercial finance company that originates, services and securitizes franchise restaurant loans and loans to convenience stores and retail petroleum distributors. Peachtree's principals have over 100 years of combined relevant industry experience in franchise lending as well as over 100 years of combined capital markets, finance and servicing expertise. Peachtree's principals have originated and funded over $2.0 billion dollars in franchise loans and have securitization experience in over 10 franchise loan transactions.
Peachtree has strong funding capabilities with First Union Securities Inc., who is an equity holder, and Rabobank International, both of whom provide asset backed commercial paper funding facilities. Additionally, Peachtree is well capitalized with capital commitments from A.J. Gallagher & Co. and Greystone Capital Partners.
Established in April 1998, Peachtrees's talent is made up of former members of major financial institutions such as: Franchise Mortgage Acceptance Corp., First Union, Amresco, Heller Financial, Bear Stearns, AT&T Capital, Fleet Bank and FINOVA.
In the first two years since commencing operations, Peachtree funded in excess of $400 million in loan transactions.