The deterioration of key credit performance metrics in the receivables of First Consumers National Bank card bonds have accelerated at an alarming pace during the past four months. The trust’s principal payment rate fell to 3.11% in June from 9.28% in February. The charge-off rate reached its current peak in June at 25.34%, and total delinquencies have increased to 18.36% from 13.63% in February 2003. The trust yield, which historically averaged above 30%, has also declined to its current level of approximately 21%, according to Standard & Poor’s Ratings Services, which lowered its ratings on all classes of First Consumers Master Trust’s series 1999-A and First Consumers Credit Card Master Note Trust’s series 2001-A.
While Spiegel’s First Consumers National Bank is pulling the plug on more than 700,000 VISA and MasterCard accounts today, the move will not affect its $2.3 billion retail credit card portfolio which includes the Eddie Bauer, Spiegel Catalog, and Newport News cards. FCNB was notified February 14th by the OCC to liquidate its bank credit card portfolio. The OCC required FCNB to stop accepting new credit card applications and stop granting credit line increases to any of its existing credit card accounts; and to notify its existing cardholders that FCNB will not accept any new charges on their accounts after April 1st. Meanwhile, Standard & Poor’s Ratings Services lowered its ratings on all classes of First Consumers Master Trusts. However, the closing of the underlying bank card accounts may have some short-term positive impact on the portfolio payment rate if higher quality obligors pay off their accounts in full or complete balance transfers. In the longer term, S&P believes it will most likely have a negative effect, resulting in adverse selection from reduced payment collections and fewer creditworthy obligors remaining in the pool. In addition, eliminating the cardholder’s ability to use the card for purchases and cash advances may also reduce the incentive to repay the loan to keep the credit line open and may lead to higher charge-offs. A slowdown in obligor repayments will likely extend the ultimate repayment period of the ABS transactions and increase the loan loss exposure period. First Consumers is the 28th largest bank credit card issuer in the USA, according to CardData ([www.carddata.com]), with 1,439,479 accounts and $1,059,783,754 in outstandings as of 12/31/02. (CF Library 2/22/02; 4/23/02; 8/23/02; 3/5/03)
NextCard credit card-backed securities have been downgraded again as payment rates declined to 4.8%, while delinquency and gross charge-off rates have increased to 18.80% and 28.10% during December. Trust yield, which historically averaged approximately 19.15%, prior to June 2002, has fluctuated dramatically during the past seven months, ranging between 8.96% and 20.35%. Therefore, Standard & Poor’s Ratings Services yesterday lowered its ratings on all classes of NextCard Credit Card Master Note Trust’s asset-backed notes series. Class A notes have be moved to “BBB+” and Class D notes have been moved to “CCC.” Unable to find a buyer for NextCard’s portfolio, the FDIC, in July, closed the underlying credit card accounts open-to-buy. On Aug. 1st, First National Bank of Omaha was appointed the successor servicer for NextCard for a 2% per annum servicing fee. The conversion process between NextCard and FNBO was completed by the end of September, at which time the FDIC terminated all of its responsibilities as subservicer. The OCC closed NextBank on Feb. 7th, 2002 and the FDIC was appointed the receiver. (CF Library 2/8/02; 2/11/02; 3/14/02; 6/10/02; 7/3/02; 7/11/02; 11/18/02)
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)