Standard & Poor’s yesterday cut the ratings on some of Metris/Direct Merchants Bank credit card-backed bonds to junk status. Metris stock is now hovering at $3.75 per share, down nearly 87% from its 52-week high. Metris, a sub-prime credit card specialist, reported a charge-off rate of 16.56% and a delinquency rate of 11.63% for the latest performance cycle. The increased charge-off rate has negatively affected excess spread rates, causing excess spread levels to fall from their two-year average of 7.18% to a current three-month average of 5.93%. S&P says the performance trends have deteriorated during the past two years with more pronounced deterioration during the past six months, as the Metris Trust has reported increased delinquency and charge-off rates. While the Metris Master Trust-related transactions continue to benefit from a lower interest rate environment, the lower base rate costs have not wholly offset the trust’s increased charge-off rates. As a result, despite having a lower cost of funds, the excess spread levels for the trust continue to drop.
Standard & Poor’s Ratings Services has downgraded Metris credit card securitizations due to adverse performance trends. The Metris Master Trust has displayed deteriorating performance trends during the past two years, but the deterioration has been more pronounced during the past six months.
Standard & Poor’s has lowered its ratings on all classes of NextCard’s credit card asset-backed notes in the 2000 and 2001 series. S&P also warned that base-rate triggers may be breached and since there has been no announced sale of the trust portfolio, the underlying credit card accounts are likely to be closed unless the NextBank receivership can obtain additional capital to fund future purchases by cardholders. Despite a static yield curve and declining base rate, the excess spread rate displayed by both series has continued to fall precipitously during the past six months, and is currently at negative 0.76% for series 2000-1 and negative 0.81% for series 2001-1. The excess spread decline is mainly the result of rising gross charge-offs (currently 16.61% as of the June distribution date). Losses may also increase further as the percentage of the collateral pool, which is greater than 90 days past due, displays an increasing trend and is currently at 4.50%. NextBank’s receiver, the FDIC, has requested and received four bids on the bank’s and the trust’s portfolio of credit card receivables, in an attempt to liquidate the bank’s assets. No sale has been announced as of this morning. (CF Library 2/8/02; 2/11/02; 3/14/02; 6/10/02)
The FDIC has received bids from four firms for NextCard’s $1.9 billion bank credit card portfolio. The defunct issuer’s credit card-backed securities were also downgraded Friday as the 90+ day delinquency rate within the collateral pool hit 4.37%. The FDIC is now in the process of establishing a final bid proposal for the four finalists. The NextCard portfolio consists of $1.2 billion in securitized receivables and approximately $700 million in bank owned receivables, according to CardData ([www.carddata.com]). Standard & Poor’s Friday revised its CreditWatch status on all classes issued by NextCard Credit Card Master Note Trust’s asset-backed notes series 2000-1 and series 2001-1 to CreditWatch with negative implications from CreditWatch with developing implications. S&P says it is concerned about the deteriorating excess spread rate and the rising delinquency. S&P says the probability of both NextCard series breaching their respective base rate triggers during the next few months is likely, especially if the FDIC fails to complete the sale of the trust receivables in the near term. The OCC closed NextBank on Feb. 7th and the FDIC was appointed the receiver. NextCard tried to find an acquisition partner after regulators determined last year that the bank was undercapitalized. The OCC said NextBank was classifying some delinquent accounts sold into a securitization trust as fraud losses, although the delinquencies were actually attributable to credit quality problems. These assets were being repurchased by the bank at par, a practice that constituted sale of assets with recourse. The OCC also found significant accounting adjustments and the need for additional loan loss reserves which resulted in the bank being undercapitalized. In January, NextCard notified the OCC that it was not possible to prepare and submit a “Capital Restoration Plan,” and said liquidation of the bank’s assets would not raise enough money to retire, in-full, the bank’s existing and anticipated liabilities. (CF Library 2/8/02; 2/11/02; 3/14/02)