Printer Friendly


 CHICAGO, Nov. 18 /PRNewswire/ -- Duff & Phelps Credit Rating Co. reaffirms its 'AAA' rating of the $200 million Variable Rate Asset-Backed Certificates (Series A) issued by the Fremont Small Business Loan Master Trust. This reaffirmation is made in conjunction with the 'AAA' rating assigned to the $100 million Series B certificates issued on Nov. 8, 1993.
 The certificates are backed by commercial finance loans in the form of revolving credit lines which are originated and serviced by Fremont Financial Corp. ("Fremont"). Collateral for the loans are trade receivables, inventory, equipment and real estate. The 'AAA' ratings reflect 19 percent subordination derived from an analysis of Fremont's historical loan liquidation performance over the last four years; the inherent liquidity of the collateral provided by an 80 percent to 90 percent monthly payment rate; and the origination and servicing capabilities of Fremont.
 D&P focused on liquidations rather than net charge-offs as the most accurate measure of collateral risk in the event of a Fremont bankruptcy and resulting loss of servicing. This included loan liquidations initiated by Fremont that were not a result of a direct default as well as voluntary liquidations by the borrower. Should an early amortization occur due to deteriorating loan performance or a Fremont bankruptcy, Fremont's monthly payment rates under a stress scenario provide strong liquidity.
 From in-depth discussions with management and staff, D&P assessed the risks to Fremont's collateral from distressed economic conditions as well as a Fremont bankruptcy. Fremont is an asset-based lender to small businesses. As a result, its underwriting emphasizes timely access to collateral and the liquidity of that collateral at the first indication of borrower weakness. D&P found management and staff to be highly seasoned in small business commercial credit. This was evident from stringent underwriting procedures, conservative collateral valuation standards and diligent initial/ongoing audit practices.
 Fremont manages its loan portfolio proactively with the objective of quickly liquidating a failing credit before the credit deteriorates into a bankruptcy situation. In all cases, Fremont has a perfected security interest in substantially all of the borrower's assets. Fremont's credit strategy reflects loan advance rates of approximately 50 percent to 60 percent of collateral value. This has resulted in strong net charge-off performance despite the 1990-91 recession.
 D&P's 'AAA' analysis considered the impact of a sudden bankruptcy of Fremont and the resulting loss of specialized servicing. Under stressed economic conditions, deterioration in loan performance causes the master trust to early-amortize if subordination falls below 17 percent at any time. D&P believes the likeliest scenario reflects the logical correlation between a weakening economy and a Fremont bankruptcy. Consequently, any deterioration would be caught early enough to allow Fremont to successfully wind-down the master trust before having any impact on Fremont. However, D&P's 'AAA' scenario anticipates a sudden loss of Fremont's servicing capability by stressing gross liquidations and payment rates.
 Although the argument can be made that a Fremont bankruptcy alone could impact the performance of the loans by forcing the borrowers to secure alternate financing, D&P believes sufficient competition exists to accommodate Fremont's lost customer base. Furthermore, should a bankruptcy occur during a stressed economy when competitors would be unable to lend to Fremont's clients, D&P believes that (in conjunction with an early amortization) the advance rates established by Fremont are conservative enough to protect investors against any depressed collateral levels.
 -0- 11/18/93 R
 /CONTACT: Andrew Leszczynski of Duff & Phelps Credit Rating Co., 312-368-3177/

CO: Fremont Small Business Loan Master Trust ST: IN: FIN SU: RTG

OP -- NY045R -- 6326 11/18/93 18:41 EST
COPYRIGHT 1993 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Nov 18, 1993

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters