MOODY'S DOWNGRADES FIRST INTERNATIONAL BANK'S SMALL BUSINESS LOAN DEALS
Moody's Investors Service downgrades 18 classes of notes issued in seven securitizations originally sponsored by First International Bank (FIB) while confirming one class of notes. FIB is now known as UPS Capital Business Credit (UPSBC). The ratings actions are due to steeply lower-than-expected recovery rates that are being realized on defaulted loans since the last rating action taken on the securities, on January 10, 2003. FIB blames the declining recovery rates on the poor state of the manufacturing sector in the U.S. The complete ratings actions are as follows:
Issuer: First National Bank of New England SBA Loan-Backed Trust 1998-1
$6.15 million Class A Notes, downgraded to A2 from Aa3
$0.68 million Class B Notes, downgraded to Ba2 from Baa2
Issuer: First International Bank Trust 1999-1
$12.79 million Class A Notes, downgraded to A3 from Aa3
$1.14 million Class M Notes, downgraded to B2 from Ba2
$0.29 million Class B Notes, rating confirmed at B3
Issuer: First International Bank Trust 2000-1
$16.14 million Class A Notes, downgraded to Ba2 from A1
$1.84 million Class M Notes, downgraded to Caa2 from Ba2
Issuer: First International Bank Trust 2000-2
$15.41 million Class A Notes, downgraded to Baa1 from Aa3
$1.34 million Class M Notes, downgraded to Ba2 from Baa3
Issuer: FNBNE Business Loan Trust 1998-A
$11.85 million Class A Notes, downgraded to Aa3 from Aaa
$0.70 million Class M-1 Notes, downgraded to Baa2 from A2
$0.70 million Class M-2 Notes, downgraded to Ba1 from Baa2
Issuer: FIB Business Loan Trust 1999-A
$19.07 million Class A Notes, downgraded to A1 from Aaa
$0.88 million Class M-1 Notes, downgraded to Baa2 from A2
$0.88 million Class M-2 Notes, downgraded to Ba3 from Baa3
Issuer: FIB Business Loan Trust 2000-A
$21.21 million Class A Notes, downgraded to Ba2 from A1
$1.34 million Class M-1 Notes, downgraded to Caa2 from Ba2
$1.48 million Class M-2 Notes, downgraded to Caa3 from B1
$1.86 million Class B Notes, downgraded to C from Caa2
FIB's pools have been adversely impacted by the recession in the manufacturing sector, which has been in a slump since the fourth quarter of 2000. Most affected are the 2000-1 and 2000-A transactions, which have delinquencies over 60 days of 26% and 21%, respectively as of the January 2004 distribution date. The 2000-1 deal has experienced 16% net losses to date, while the 2000-A deal has losses of 20%. The Class A securities in both transactions are downgraded to Ba2, based on the remaining subordination and excess spread available. Recoveries on defaulted collateral have been lower than expected in both deals at 27% and 17% for the 2000-1 and 2000-A transactions, respectively. Collateral generally consists of a mix of equipment and real estate. Subordinate securities in both transactions are likely to default at their respective legal final maturities due to the erosion in credit support.
The remaining five securitizations are performing better than 2000-1 and 2000-A, but remain under stress.
For the SBA 7(a) deals, 60+ delinquencies are as follows: 1998-1: 14%; 1999-1: 24%; 2000-2: 21%. Delinquencies past 60 days are as follows for the conventional loan deals: 1998-A: 17%; 1999-A: 13%.
Most troublesome for the deals is the lower than expected recovery rates on defaulted collateral, ranging from 9% for 1999-A to 34% for 1998-A. The ratings actions consider the impact of lower and more volatile recoveries on the collateral, in addition to the credit support available in the form of subordination, reserve account, and excess spread.
UPS Capital Corporation, a wholly-owned subsidiary of United Parcel Service, Inc., purchased FIB in August 2001. In April 2003, FIB changed its name to UPSBC. UPSBC is currently servicing the portfolio. FIB was formerly known as First National Bank of New England.
The notes were sold in a privately negotiated transaction without registration under the Securities Act of 1933 (the Act) under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A.
Further information is available on http://www.moodys.com.
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