-- $297,952,000 (notional amount) class A-IO certificates 'AAA';
-- $199,990,000 class 1A floating-rate certificates 'AAA';
-- $77,962,000 class 2A fixed-rate certificates 'AAA';
-- $10,150,000 class M1 certificates 'AA';
-- $8,588,000 class M2 certificates 'AA-'
-- $9,369,000 class M3 certificates 'A';
-- $6,246,000 class B certificates 'BBB+'.
The class A-IO, 1A, and 2A ratings reflect credit enhancement provided by the subordination of the class M1 certificates (3.25%), the class M2 certificates (2.75%), the class M3 certificates (3.00%), the class B certificates (2.00%), the reserve fund (1.25%), and expected excess spread. The class M1 rating reflects credit enhancement provided by the subordination of the class M2 certificates, class M3 certificates, class B certificates, the reserve fund, and expected excess spread. The class M2 rating reflects credit enhancement provided by the subordination of the class M3 certificates, class B certificates, the reserve fund, and expected excess spread. The class M3 rating reflects credit enhancement provided by the subordination of the class B certificates, the reserve fund, and expected excess spread. The class B rating reflects credit enhancement provided by the reserve fund and expected excess spread. The ratings address the payment of interest and principal in accordance with the terms of the legal documents.
The certificates are backed primarily by a pool of conventional business loans made to small businesses. The loans are secured by first liens on commercial or mixed-use real estate. None of the underlying business loans are insured or guaranteed by any governmental agency. The loans were originated by Lehman Brothers Small Business Finance (LBSBF) or its predecessors. This transaction represents the ninth term securitization of loans originated by the LBSBF or its predecessors.
The trust assets consist primarily of 396 business loans made to 380 borrowers. The pool is diversified geographically, with loans from 29 states. The largest state concentrations are in California (46.7%), Florida (12.8%), Texas (11.0%), Washington (5.5%) and Arizona (3.7%).
Fitch took into consideration both quantitative and qualitative factors in evaluating LBSBF's credit enhancement structure. After reviewing historical default and recovery data on both an annual and static pool basis to develop an expected loss rate, Fitch analyzed cash flows reflecting stressed default rates, recovery rates, and recovery timing lags under several default timing scenarios. Fitch also reviewed historical prepayment data and applied various prepayment stresses to the cash flows. The ratings also took into consideration the origination, underwriting, and servicing experience of LBSBF; the role of LBSBF as servicer; and the sound legal and payment structure.
The A-IO and 2A certificates will receive fixed-rate interest payments. The class 1A, M1, M2, M3, and B certificates will pay floating-rate interest based on a spread over one-month London Interbank Offered Rate (LIBOR), and principal will be paid to the class 1A, 2A, M-1, M-2, M3, and B certificates on a sequential basis during the 24 month lock-out period but will convert to a pro rata structure following the lock-out period.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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