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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
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
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
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
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's confirms rating on CIT sponsored small business loan ABS
Structured Finance Group
Moody's Investors Service
No Related Data.
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