MOODY'S DOWNGRADES 23 CLASSES AND CONFIRMS 8 CLASSES OF AMRESCO FRANCHISE LOAN SECURITIZATIONS
Moody's Investors Service announced that it has downgraded 23 classes and confirmed 8 classes in six franchise loan securitizations sponsored by AMRESCO Commercial Finance (Amresco). The ratings actions are due to significantly weaker-than-expected credit performance of the collateral pools supporting the securities. The affected tranches were placed under review for possible downgrade on March 2, 2004. The complete rating actions were as follows:
Issuer: ACLC Business Loan Receivables Trust 1998-A
$46,464,000 6.345% Class A-1-C Notes, Aaa confirmed
$ 8,064,000 6.400% Class A-2 Notes, downgraded to A3 from Aa2
$11,520,000 6.645% Class A-3 Notes, downgraded to B2 from A2
Issuer: ACLC Business Loan Receivables Trust 1998-2
51,000,000 5.900% Class A-1 Notes, Aaa confirmed
$10,000,000 6.326% Class A-2 Notes, Aaa confirmed
$62,798,000 6.686% Class A-3 Notes, downgraded to A2 from Aaa
$13,154,000 6.850% Class B Notes, downgraded to Ba2 from Baa2
$16,248,000 7.390% Class C Notes, downgraded to Caa2 from B1
Issuer: ACLC Business Loan Receivables Trust 1999-1
$ 64,000,000 6.516% Class A-1 Notes, downgraded to Aa2 from Aaa
$ 19,000,000 6.940% Class A-2 Notes, downgraded to A1 from Aaa
$100,347,000 7.385% Class A-3 Notes, downgraded to Ba2 from Aa2
$17,672,000 7.710% Class B Notes, downgraded to Caa1 from Baa3
$17,672,000 8.095% Class C Notes, downgraded to C from B3
Issuer: ACLC Business Loan Receivables Trust 1999-2
$54,000,000 7.585% Class A-2 Notes, Aaa confirmed
$80,000,000 Floating Rate Class A-3A Notes, Aaa confirmed
$23,200,000 7.930% Class A-3F Notes, Aaa confirmed
$25,500,000 8.745% Class B Notes, downgraded to A3 from Aa2
$ 5,100,000 9.000% Class C Notes, downgraded to Baa2 from A1
$20,400,000 9.350% Class D Notes, downgraded to B1 from Baa3
Issuer: ACLC Business Loan Receivables Trust 2000-1
$28,600,000 7.830% Class A-2 Notes, Aaa confirmed
$15,300,000 8.030% Class A-3F Notes, downgraded to A1 from Aaa
$68,600,000 Floating Rate Class A-3A Notes, downgraded to A1 from Aaa
$16,275,000 8.390% Class B Notes, downgraded to B1 from A2
$ 5,250,000 8.630% Class C Notes, downgraded to Caa1 from Baa2
$13,650,000 8.870% Class D Notes, downgraded to Ca from B1
Issuer: ACLC Business Loan Receivables Trust 2002-1
$44,400,000 5.408% Class A-1 Notes, Aaa confirmed
$41,000,000 7.462% Class A-2 Notes, downgraded to Aa1 from Aaa
$10,200,000 7.801% Class B Notes, downgraded to A1 from Aa2
$ 8,200,000 8.768% Class C Notes, downgraded to Ba1 from Baa1
$ 5,200,000 10.018% Class D Notes, downgraded to Ba3 from Baa3
$ 2,850,000 8.000% Class E Notes, downgraded to Caa1 from Ba3
The rating actions are a result of continued higher than expected delinquency and default rates suffered by the deals over the last several months. The Amresco pools have high concentrations in casual dining and fast food restaurants, as well as convenience and gas stations (C&Gs). As a result, the affected pools have posted high delinquencies and defaults due to the adverse impact of the weak economy on the restaurant sector, and the weak financial prospects of retail C&G operators over the last several years.
According to Shorie Darnaby, a senior credit officer in Moody's asset finance group, the analysis also considered Amresco's historical and projected recovery rates and the timing of receipt of such recovery proceeds by the related trusts relative to the current credit enhancement available for each class of notes. As of April 2004, Amresco's deals were each experiencing total non-performing loans (which include delinquent, defaulted, and accelerated loans) as follows: 1998-2: 35% (almost all of which - 34.5% - were over 180 days past due); 1999-1: 42.4% (41% over 180 days past due); 1999-2: 26% (19% over 180 days past due); 2000-1: 39.3% (30% over 180 days past due), and 2002-1: 12% (6% over 180 days past due). While the percentage of non-performing loans in the 1998-A transaction are significantly lower than the other Amresco deals at 8.4% of which only 1.4% was over 180 days past due, they have increased over 2.5 times in the last six months. . The 1999-2 and 2000-1 transactions partly benefit from the current low interest rate environment because the Class A3-A notes in both deals pay coupons tied to LIBOR, which presently result in higher excess spread for the respective deals.
Historical weighted average net recovery rates to date for Amresco's 1998-A, 1998-2, 1999-1, 1999-2, 2000-1, and 2002-1 deals have been approximately 80%, 79%, 69%, 55%, 76%, and 96%, respectively. The servicer's current estimated future recoveries for the defaulted and accelerated loans in the 1998-A, 1998-2, 1999-1, 1999-2, 2000-1, and 2002-1 transactions are 73%, 82%, 70%, 83%, 70%, and 56%, respectively. However, there is no assurance that such estimated future recoveries may be obtained and the servicer's estimates are subject to change.
The servicer states its goal is to maximize recoveries for each trust. Some of the nonperforming loans have been in default (180+ days past due) for a long period of time while the servicer seeks to liquidate such collateral or resolve the problems. For example, OSF II Partners has been a defaulted borrower for 1061 days (almost three years), and Duke & Long has been a defaulted obligor for 1397 days (almost four years) in the 1999-1 pool. For as long as the collateral is not liquidated, all tranches are receiving interest on their respective outstanding balance. However, if recovery amounts on the liquidated loans are not sufficient, the servicer is required to write down the tranches based on the adverse order of seniority. Therefore, as long as the non performing loans are not liquidated, the subordinated tranches are receiving interest at the expense of the senior tranches not receiving additional principal (from recovery proceeds) in the deals.
Cumulative static pool losses occurred to date have been 7.0%, 8.1%, 23.8%, 15.3%, 17.1%, and 2.6% for Amresco's series 1998-A, 1998-2, 1999-1, 1999-2, 2000-1, and 2002-1 securitizations, respectively. Currently, Amresco forecasts future cumulative static pool losses based on the current non-performing loans of 0.5%, 2.9%, 9.0%, 2.0%, 8.2%, and 3.4% for its 1998-A, 1998-2, 1999-1, 1999-2, 2000-1, and 2002-1 securitizations, respectively.
Amresco, which is currently unrated by Moody's, is the servicer on all the listed securities and was a franchise lender that stopped originating loans in 2002.