Fitch Downgrades Heller SBA Loan Trust, Series 1998-1

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on Heller SBA Corp. pass-through adjustable-rate certificates, series 1998-1:

--Class A downgraded to 'BB-sf' from 'BBBsf'; Outlook Negative;

--Class M-1 downgraded to 'B+sf' from 'BB+sf'; Outlook Negative;

--Class M-2 downgraded to 'Bsf' from 'BBsf'; Outlook Negative;

--Class M-3 downgraded to 'B-sf' form 'Bsf'; Outlook Negative;

--Class B affirmed at 'CCCsf'; RE 100%.

KEY RATING DRIVERS

The downgrade reflects limited available credit enhancement (CE) to all outstanding classes. Notably, there was a significant reserve release to account for a high concentration of late state delinquencies. As such, the only remaining CE support is via subordination. Given the status of these loans, Fitch expects very limited recovery proceeds. As a result of the limited protection, classes have been downgraded to the levels detailed above. The Negative Outlook reflects the limited credit support afforded to the transaction in the event of future asset deterioration. Fitch affirmed class B at 'CCCsf' with RE100% as it is exposed to any collateral deterioration.

RATING METHODOLOGY

In reviewing the transactions, Fitch took into account analytical considerations outlined in its 'Global Structured Finance Rating Criteria', published Aug. 4, 2014, including asset quality, CE, financial structure, legal structure, and originator and servicer quality.

Fitch's analysis incorporated a review of collateral characteristics, in particular, focusing on delinquent and defaulted loans within the pool. All loans over 30 days delinquent were deemed defaulted loans. The defaulted loans were applied loss and recovery expectations based on collateral type and historical recovery performance to establish an expected net loss assumption for the transaction. Due to the severely delinquent status of the delinquent loans and an additional haircut was applied to the recovery expectations. Fitch stressed the cashflow generated by the underlying assets by applying its expected net loss assumption. Furthermore, Fitch applied a loss multiplier to evaluate break-even cash flow runs to determine the level of expected cumulative losses the structure can withstand at a given rating level. The loss multiplier scale utilized is consistent with Fitch's 'Criteria for Rating U.S. Equipment Lease and Loan ABS', dated Dec. 23, 2014.

Additionally, Fitch's analysis focused on concentration risks within the pool, by evaluating the impact of the default of the largest performing obligors. The obligor concentration analysis is consistent with the previously mentioned equipment criteria. The analysis compares expected loss coverage relative to the default of a certain number of the largest obligors. The required net obligor coverage varies by rating category. The required number of obligors covered ranges from 20 at 'AAA' to five at 'B'. Fitch applied loss and recovery expectations based on collateral type and historical recovery performance to the largest performing obligors commensurate with the individual rating category. The expected loss assumption was then compared to the modeled loss coverage available to the outstanding notes given Fitch's expected losses on the currently delinquent loans. Fitch also applied the 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' dated May 28, 2014 in determining the ratings.

While the stresses loss approach was the primary driver, its results were compared to the obligor concentration approach and qualitative factors such the results of these approaches compared to prior reviews, recent performance, and available CE. The rating actions taken were ultimately the result of a combination of these factors. Fitch will continue to closely monitor these transactions and may take additional rating action in the event of changes in performance and CE measures.

RATING SENSITIVITY

While assumed recoveries on the non-performing collateral are low, Fitch believes it to be appropriate given the length of time the loans have been nonperforming. If recoveries are similar in size and timing than assumed, ratings may be stable for the classes. However, if recoveries are worse, have a longer lag, or if the transaction has any more meaningful delinquencies, then negative rating actions are likely.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014);

--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (Dec. 23, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Criteria for Rating U.S. Equipment Lease and Loan ABS

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=830328

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983083

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Thomas Kaiser, CPA
Associate Director
+1 312-368-3338
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Du Trieu
Senior Director
+1 312-368-2091
or
Committee Chairperson
Bradley Sohl
Senior Director
+1 212-908-0792
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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