Fitch assigns final ratings to Small Business Origination Loan Trust 2026-1 DAC notes

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Fitch rates Small Business Loan Trust 2026

Highlights

Fitch assigns final ratings to Small Business Origination Loan Trust 2026-1 DAC notes: A-Loan at Asf, class B at BBBsf, class C at BBsf; R and Z not rated.
Underlying static SME loan pool has a one-year probability of default near 5.0% and projected average recovery rate about 35% over five years post-default.
Structural risks higher due to pro rata amortisation allowing cash flow to subordinated notes, while industry concentration sees property, construction, manufacturing, and business support at 44.6% of balance.

Transaction structure and rating drivers

As reported by Fitch Ratings, Small Business Origination Loan Trust 2026-1 DAC receives final ratings on its notes, including A-Loan at Asf, class B at BBBsf and class C at BBsf, while the R and Z notes are not rated. The securitisation is structured as a true-sale transaction backed by a static pool of UK small and medium-sized enterprise loans sold by Glencar Investments 49 DAC, with Funding Circle Ltd acting as servicer.

Fitch says it assesses the underlying SME portfolio using Funding Circle's static default vintage data by internal risk band and determines an average one-year probability of default at close to 5.0%. Most of the loans are unsecured but supported by personal guarantees from SME owners, while a GBP6.6 million portion benefits from a debenture granted by the SME borrowers, and Fitch estimates an average recovery rate of close to 35% distributed over five years after default.

The agency also highlights the portfolio's granularity, with the top 10 obligors accounting for 2.2% of the balance. Industry concentration is more pronounced, with property and construction, manufacturing and engineering, and professional and business support together making up 44.6% of the portfolio balance.

Structural risks and implications for SME securitisation

Fitch says the transaction carries added sensitivity during its pro rata amortisation period because proceeds can flow to subordinated notes before a sequential-pay trigger is hit. In its view, that makes the structure riskier than a purely sequential amortisation profile.

The agency applies some defaults during the first year of the transaction under a back-loaded default timing assumption, which it says is consistent with the historical performance data for Funding Circle's loan book and prior securitisations. Fitch also rates the class A to C notes one notch above their model-implied ratings, saying the deviation reflects fee and stress assumptions tied to an immediate back-up servicer takeover, high prepayments and high defaults, a combination it considers highly remote.

Our earlier article covered the U.S. Small Business Administration’s Freedom 250 Small Business Pledge, a program tied to the nation’s 250th anniversary that offers participating firms official recognition and a place in a national network promoting entrepreneurship. The piece also outlined the SBA’s backdrop for the initiative, pointing to record-high new business formations and recent job growth as signs of confidence in the small-business environment.

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