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Rating Action:

Moody's confirms rating on CIT sponsored small business loan ABS

05 May 2010

New York, May 05, 2010 -- Moody's has concluded its review and confirmed the rating of Class A ("Notes"), the notes issued by CIT SBL Company 2008-1, a small business loan transaction sponsored by the CIT Group Inc ("CIT"). The Notes are collateralized by a pool of loans made to small businesses under the conventional commercial loan program and the SBA 504 loan program of CIT's subsidiary, CIT Lending Services Corporation. All of the loans are secured by commercial real estate. The review was prompted by worse than expected performance. As of the April 20, 2010 payment date, cumulative net losses were 6.4% of the original balance, and 20% of the current pool was 60 days or more past due. A major driver of the underperformance is the approximately 40% of the pool secured by hotels, of which about 50% are delinquent. It is important to note that part of the recoveries on accounts defaulted to date have not yet been realized; as the loans in the pool are secured by commercial real estate, ultimate recoveries may cover a large share of defaults. Total "hard" credit enhancement (excluding the estimated benefit from excess spread of approximately 4.6% per annum) as a percentage of the remaining collateral is currently approximately 29.8%.

The rating was initially placed under review for possible downgrade on July 15, 2009, as CIT's bankruptcy became more likely, in consideration of the potential impact of a bankruptcy on servicing operations. As described in a press release issued on February 12, 2010, "Moody's confirms CIT equipment and student loan ABS ratings; small business ABS remains under review," subsequent to CIT's bankruptcy filing, Moody's performed a review of CIT's operations, including the subsidiaries responsible for servicing small business loans. We found no impact resulting from the parent's financial distress and no degradation of servicing capabilities as a result of the extended economic downturn. However, the CIT SBL Company 2008-1 transaction remained on review for possible downgrade solely due to performance deterioration.

Moody's expects the loan pool to incur lifetime net losses of approximately 14% of the original pool balance (or approximately 12% of the remaining pool balance). This compares with our original expected losses for the lifetime of the transaction of 8.0%.

As of the April payment date, available credit enhancement included overcollateralization (22.5% of current pool balance), a reserve account (7.3% of current pool balance), and excess spread (approximately 4.6% per annum). Moody's Volatility proxy Aaa level for this transaction is 40% of the remaining pool balance. Although the loss expectation has increased substantially since closing, Moody's has concluded that the available credit enhancement benefiting the Notes provides sufficient protection to the rating in light of the following:

• the improved visibility on the macroeconomic environment and on commercial property values going forward

• the fact that the borrowers in the pool that are not currently delinquent have proved resilient in a period of significant stress to their businesses

• the greater stability of CIT and its continued commitment to servicing quality and to small business lending.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that significantly deviates from these estimates may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected levels will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics. Primary sources of assumption uncertainty are the general economic environment, commercial property values, and the ability of small businesses to weather the recession. The high obligor concentration (chunkiness) in the pool, where the largest ten obligors account for about a 30% of the loan balance, adds to performance volatility. Moody's expects that the unemployment rate will drift higher in the near term, peaking near 10.3% late this year as the labor force expands but declining steadily in 2011 and 2012. Overall, Moody's central global scenario remains "Hook-shaped" for 2010 and 2011; we expect overall a sluggish recovery, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels.

The methodology used in this rating action is based on a loan-by-loan approach to arrive at the expected loss estimate for the collateral pool backing the transaction. A loan-by-loan approach involves inferring gross defaults and recovery rates for a given asset pool based on the analysis of each loan in order to determine its likelihood to default. The review includes an analysis of the business type, property location, past payment history, borrower's creditworthiness, and the most recent appraisal or an estimate of market value of the property. In this case, the servicer/sponsor provides Moody's with the required data on all the loans which are currently outstanding in the pool. Moody's obtains the final expected loss for the pool by applying the severity percentages on the loan amounts that are assumed to default based on the review described above. The judgment of a rating committee is used to assess what level of credit enhancement would be consistent with a Aaa rating. The factors driving the Aaa credit enhancement level for a transaction include the credit quality of the collateral pool, industrial and geographical concentrations, top loan percentages, the historical variability in losses experienced by the issuer, the servicer quality, and the structural features employed in the deal.

Other methodologies and factors that may have been considered in the process of rating the transaction can also be found on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Further information on Moody's analysis of this transaction is available on 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.

The complete rating action is as follows.

Issuer: CIT SBL Company 2008-1

Cl. A, Confirmed at Aaa; Previously on Jul 15, 2009 Placed Under Review for Possible Downgrade

New York
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Katherine Lew
Senior Associate
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's confirms rating on CIT sponsored small business loan ABS
No Related Data.
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