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28 Mar 2011
Approximately $14.9 million of asset-backed securities affected.
New York, March 28, 2011 -- Moody's Investors Service has downgraded four tranches issued in two securitizations
and has confirmed two tranches in one securitization of small business
loans sponsored by Amresco Independence Funding. The affected transactions
are collateralized by the unguaranteed portion of Small Business Administration
loans secured primarily by commercial real estate. American Business
Lending, Inc (a Texas corporation) services these deals.
On March 2, 2011, the two tranches in the Independence Funding
Company, LLC, Series 1997-1 transaction were placed
on review for possible downgrade following the publication of Moody's
"Global Structured Finance Operational Risk Guidelines: Moody's
Approach to Analyzing Performance Disruption Risk." According to
the new guidelines, the transaction was determined to be subject
to operational risk, since American Business Lending is an unrated
company and the transaction structure does not include back-up
As a result of our review of the transaction performance and the available
credit enhancement, we determined that the operational risk is largely
mitigated. Therefore, we are confirming the ratings of the
two classes in the 1997-1 transaction. As of the February
2011 distribution date, the reserve account was approximately 40%
of the current pool balance. In the event of a servicing disruption,
this account would be used to make the required interest and principal
payments, thus significantly reducing the probability of a payment
disruption. In addition, the Small Business Administration,
the guarantor of a portion of the loans, will likely attempt to
maximize collections and recoveries on the guaranteed portion of the loans.
This will benefit the securitized (i.e., unguaranteed)
portion of the loans as well.
The downgrades of the 1999-1 and 2000-1 transactions were
prompted by higher than expected losses. Since the last rating
actions in June 2009, the cumulative net losses increased from 9.8%
to 10.6% and from 12.7% to 15.1%
of the original pool balance for the 1999-1 and 2000-1 deals,
The methodology used in these rating actions included projecting losses
using a loan-by-loan analysis. Our current lifetime
expected net losses for the 1999-1 and 2000-1 transactions
are 11.5% and 16.75%, respectively.
Moody's assessed the likelihood of each loan to default based on the levels
of current delinquencies, business types, property locations,
past payment histories, borrower's creditworthiness, and either
appraisals or estimates of property market values. The expected
losses on the pools were then examined in relation to available credit
enhancement, including reserve accounts, subordination,
and excess spread.
Primary sources of assumption uncertainty are the general economic environment,
commercial property values, and the ability of small businesses
to recover from the recession. If the remaining expected losses
used in determining the ratings were increased by 10%, the
initial model-indicated ratings for the Class A tranches would
Other methodologies and factors that may have been considered in the process
of rating these transactions can also be found on Moody's website.
Further information on Moody's analysis of this transaction is available
The complete rating actions are as follows:
Issuer: Independence Funding Company, LLC, Series 1997-1
Class A, Confirmed at Aaa (sf); previously on Mar 2,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
Class B, Confirmed at A1 (sf); previously on Mar 2, 2011
A1 (sf) Placed Under Review for Possible Downgrade
Issuer: AMRESCO Independence Funding, Inc. Series 1999-1
Class A, Downgraded to Aa1 (sf); previously on Dec 10,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
Class M, Downgraded to A3 (sf); previously on Dec 10,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Issuer: AMRESCO Independence Funding, Inc. Series 2000-1
Class A, Downgraded to A3 (sf); previously on Dec 10,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
Class M, Downgraded to Ba3 (sf); previously on Dec 10,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Moody's Investors Service received and took into account one or more third
party due diligence reports on the underlying assets in this transaction
and the due diligence reports had a neutral impact on the rating.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service 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
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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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's takes actions on small business loans securitizations by Amresco Independence Funding
250 Greenwich Street
New York, NY 10007
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