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11 Feb 2011
Approximately $204 million of asset backed securities affected.
New York, February 11, 2011 -- Moody's Investors Service has downgraded four classes of certificates
issued by CNL Funding 98-1, LP, and six classes of
certificates issued by CNL Funding 99-1, LP. The certificates
are backed by franchise loans made to fast-food and casual dining
restaurants. Credit enhancement for the certificates consists of
solely of subordination and overcollateralization of the certificates
by the loans. The rating actions are prompted by potentially insufficient
levels of credit enhancement available to protect noteholders from future
losses. The complete rating action is as follows:
Issuer: CNL Funding 98-1, LP
Class D-1, Downgraded to B1 (sf); previously on Nov
10, 2010 Ba2 (sf) Placed Under Review for Possible Downgrade
Class D-2, Downgraded to B1 (sf); previously on Nov
10, 2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Class E-2, Downgraded to Caa3 (sf); previously on Nov
10, 2010 B2 (sf) Placed Under Review for Possible Downgrade
Class E-1, Downgraded to Caa3 (sf); previously on Nov
10, 2010 B3 (sf) Placed Under Review for Possible Downgrade
Issuer: CNL Funding 99-1, LP
Class A-2, Downgraded to A2 (sf); previously on Nov
10, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Class IO, Downgraded to A2 (sf); previously on Nov 10,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Class B, Downgraded to Baa2 (sf); previously on Nov 10,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Class C, Downgraded to Ba1 (sf); previously on Nov 10,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Class D, Downgraded to Ba2 (sf); previously on Nov 10,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Class E, Downgraded to B3 (sf); previously on Nov 10,
2010 B1 (sf) Placed Under Review for Possible Downgrade
In CNL Funding 98-1, LP, the fixed (D-1 and
E-1) and floating rate (D-2 and E-2) certificates
are backed by fixed and floating rate pools, respectively.
As of the Jan 18th, 2011 payment date, the Class D certificates
benefit from 17% subordination of Class E certificates, and
the Class E certificates are unsupported. The fixed and floating
rate pools are cross supported with losses allocated to both subpools
in reverse alphabetical order. The transaction has suffered from
significant collateral losses following the Chapter 7 bankruptcy of S&A
Restaurants Corp in 2008, which resulted in the liquidation of many
Steak & Ale properties in both subpools. While the transaction
no longer has any exposure to Steak & Ale, it is still subject
to significant franchise concept concentration risks with Taco Bell,
Burger King, and KFC comprising 38%, 18%,
and 16% of total outstanding pool balance, respectively.
In CNL Funding 99-1, LP, subordinated certificates
provide credit support of 48% to Class A , 35% to
Class B, 27% to Class C, 23% to Class D,
and 15% to Class E as of the January 18th 2011 payment date.
The transaction has suffered from collateral losses, completely
depleting the initial overcollateralization amount of $1,391,620
at closing and leading to writedowns on the Class H certificates.
The transaction remains subject to significant franchise concentration
risks with Wendy's, Taco Bell, and KFC comprising 29%,
15% and 15% of the outstanding pool balance, respectively.
The primary source of uncertainty for the transactions is the current
macroeconomic environment and its impact on the restaurant and fast food
industry. Moody's current outlook on the restaurant industry
is stable but weak as many fast food restaurants remain under financial
pressure. The prolonged recovery of the restaurant industry may
lead to future defaults as borrowers continue to suffer from cash flow
In order to estimate losses on the collateral pools, Moody's calculates
the expected loss given default of the obligors that have become nonperforming,
and also estimates future losses on performing portion of the pools,
all as a percentage of the outstanding pool balances. In evaluating
the nonperforming loans, key factors include collateral valuations
and expected recovery rates, volatility around those recovery rates,
historical obligor performance, time until recovery or liquidation
on defaulted obligors, concessions due to restructuring which may
negatively impact the overall cash flow of the trust and/or the collateral,
and future industry expectations. In evaluating the performing
portions of the pools, we estimate default rates based on industry
outlook and credit quality of underlying concepts and/or borrowers,
with additional stress applied for highly concentrated pools, such
as the two CNL Funding pools in these actions. We then apply a
stressed loss severity that accounts for historical loss experience as
well as possible future deterioration of the underlying collateral.
Our total losses are then evaluated against the available credit enhancement
provided by overcollateralization, subordination, and excess
spread. Sufficiency of coverage is considered in light of remaining
borrower concentrations and concepts, remaining bond maturities,
and economic outlook.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website at www.moodys.com.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings, and methodologies available to all registered
users of our website at www.moodys.com/SFQuickCheck
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
confidential and proprietary Moody's Investor Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
MOODYS DOWNGRADES NOTES FROM CNL FUNDING 98-1 and CNL FUNDING 99-1
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