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Credit Card Charge-Off Pressures Remain

5, Country, Priority, UNITED STATESBy Robert McKinley 08/31/2009

A credit card ABS rating firm says it needs to see some measurable
improvement in the delinquency and personal bankruptcy figures and the
employment situation overall before charge-offs revert to more
historical norms. Fitch Ratings says that despite the one-month
improvement in July, most credit card ABS trusts remain pressured from a
charge-off perspective. Charge-offs had risen 45% from February through
July and they still remain 63% above year earlier levels. Late stage
delinquencies, or receivables more than 60 days past due, have held
relatively stable albeit near record highs during the same period
following a rapid increase over the prior six months that forewarned the
charge-off run-up. Fitch’s “Prime Credit Card Charge-off Index” declined
24 basis points to 10.55% for the July collection period. Despite the
elevated level, Fitch expects current ratings of senior tranches to
remain stable given available credit enhancement and structural
protections afforded investors.

JUNE ABS

5, Country, Priority, UNITED KINGDOMBy Robert McKinley 08/11/2009

Delinquency amongst credit card-backed securities began to ease in June after surging to record levels all year. However, charge-offs continued to set new records approaching double digits, with some credit card trusts near the 12% level. Charge-offs leapt 70 basis points while 60-to-180 day delinquency nudged down by 10 basis points. The Fitch “Charge-off Index” increased for the fifth straight month in June to 9.8%, compared to 9.1% in the prior month and 6.9% one-year ago. Fitch says it is particularly concerned about the change in the make-up of charge-offs in the first half of 2009, with increasing amounts of chargeoffs originating from accounts rolling through the delinquency buckets, as cardholders experience more difficulties in making their monthly payments. Also, the increase in the use of debt management programs has also been a major concern; cardholders who have already displayed difficulties in servicing their debts continue to be exposed to increasing economic stress, which is likely to lead to an acceleration in reported charge-off increases in the longer term. In June, the Fitch “Delinquency Index” decreased, after rising for nine consecutive months, moving to 5.4% from 5.5% in May and 3.7% in June 2008. As the economic downturn continues to hit the U.K., Fitch expects that further rises in unemployment, together with high levels of borrowing for U.K. consumers, will continue to exert stress on cardholders, resulting in increasing delinquencies as they struggle to meet their debt obligations.

Credit Card ABS Metrics Begin to Brighten in June

5, Country, Priority, UNITED STATESBy Robert McKinley 08/03/2009

There appears to be stabilization in delinquency rates and a
deceleration in charge-off increases based on the latest performance for
credit card-backed securities. Delinquency has leveled off over the past
five months, hovering between 4.3% and 4.5%. Charge-offs, which soared
more than 100 basis points in February, increased 35 basis points in
June, the smallest increase in five months. According to Fitch,
charge-offs among prime credit card ABS hit a record 10.79% in June,
compared to 10.44% in the prior month, but up 64% higher than
year-earlier measures. Credit card delinquencies (60+ days) declined 14
basis points in June to 4.31%, but up about 40% over June 2008.
Pricing initiatives and discount options continue to generate
incremental yield, as evidenced by a 36 basis point rise in June’s yield
to 17.95%, representing the highest level in 15 months. Since the
increase in yield completely offset the increase in charge-offs this
month, one-month excess spread improved slightly although the
three-month average excess spread remains compressed at 4.35%.

ABS METRICS
Delinquency Charge-Offs
Jan 09: 4.04% 7.40%
Feb 09: 4.33% 8.41%
Mar 09: 4.44% 8.89%
Apr 09: 4.37% 9.66%
May 09: 4.45% 10.44%
Jun 09: 4.31% 10.79%
Source: Fitch

Fitch Puts 121 CC-Backed ABS Under Review

5, Country, Priority, UNITED STATESBy Robert McKinley 07/24/2009

Fitch Ratings’ review of U.S. Credit Card ABS transactions has designated 121 classes as ‘Under Analysis’.
The following trusts will be reviewed because their performance is
outside Fitch’s expectations: “BA Master Credit Card Trust II”;
“BA Credit Card Trust” and “Chase Credit Card Master Trust”.
A transaction may also be designated as ‘Under Analysis’ when a review
is undertaken because of a material event affecting the transaction or
when a regular, more in-depth periodic review is being performed.
As Fitch receives monthly information on credit card ABS transactions
from trustees and servicers, Fitch analysts run the data through various
internal algorithms which identify classes of a transaction as possible
candidates for upgrade or downgrade. Fitch’s analysts scrutinize the
output to decide which deals need further review, which are noted as
‘Under Analysis’. Deals not selected for further review are given a
SMARTView date indicating that the performance information has been
reviewed as of that date. While
transaction performance is reviewed monthly, Fitch conducts detailed
portfolio reviews at least annually.

Retail Card Charge-Offs Near 13% Level in May

5, Country, Priority, UNITED STATESBy Robert McKinley 07/09/2009

Fitch Ratings has published the July edition of ‘Credit Card Movers & Shakers’. Credit card delinquencies and charge-offs breached record levels in May as U.S. consumers continued to fall behind and default on their credit cards at record rates. Although excess spread is compressing, the ratings on many trusts have remained stable as issuers have added more credit enhancement and turned on the discount option in order to deal with the souring economy. In addition to latest credit card performance trends, this edition summarizes some of the more recent issuer actions and includes a list of trusts in which excess spread trapping is occurring.

‘Credit Card Movers & Shakers’ is available on the Fitch Ratings web site at www.fitchratings.com under the following headers:

Structured Finance >> ABS >> Newsletters

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.

ABS Excess Spread Falls to a Decade Low

5, Country, Priority, UNITED STATESBy Robert McKinley 07/07/2009

The latest results of U.S. credit card-backed securitizations reveals that the three-month excess spread index fell below the 5% threshold for the first time since November 1998. Excess spread for credit card ABS can be viewed as a transaction’s profitability, measuring the difference between its revenue (portfolio yield and interchange) and expenses (coupon, servicing, and chargeoffs). The June reading, which covers the May collection period, fell to 4.83% from 5.30%, according to the latest “Credit Card Indexes” from Fitch Ratings.
Although chargeoffs are climbing and excess spread is compressing, the ratings on many trusts have remained stable as issuers have added more credit enhancement and turned on the discount option in order to deal with the sour economy. Fitch says excess spread is compressing as a result of soaring chargeoffs, which climbed past 10% to hit another record high this month. The overall effect on excess spread would be worse had there not been strong gains in gross yield. Although prime rate is 175 basis points lower year over year, gross yield is actually 17 basis points higher.

Fitch Ratings Takes More ABS Under Analysis

5, Country, Priority, UNITED STATESBy Robert McKinley 06/29/2009

Fitch Ratings has designated 55 classes as ‘Under Analysis’ that indicate and intent to issue a rating action within 30 days. A rating action could include an affirmation, upgrade, downgrade or placement on the “Rating Watch”. The “HSBC Master Note Trust” is reviewed because the trust performance is outside of expectations. The “Discover Card Master Trust” and Discover Card Execution Note Trust have been placed ‘Under Analysis’ because they will be reviewed following the placement of classes B and C on Rating Watch Positive. Three hundred and ninety-three classes of U.S. credit card ABS transactions were designated with a SMARTView date of June 25th, indicating that performance has been reviewed and a rating action is not
anticipated within the next 30 days. Fitch’s analysts scrutinize the output to decide which deals need further review, which are noted as ‘Under Analysis’. A transaction may also be designated as ‘Under Analysis’ when a review is undertaken because of a material event affecting the transaction or when a regular, more in-depth periodic review is being performed.

Credit Card ABS Delinquency Down a Skosh in April

5, Country, Priority, UNITED STATESBy Robert McKinley 06/05/2009

While average charge-offs among credit card-backed securities approach
double-digits for the first time, the 60-day delinquency ratio eased a
bit in April. However, excluding the effect of the bankruptcy spike in
2005, the three month average excess spread dropped to its lowest level
since early 2001. According to the latest “Credit Card Index” results
from Fitch Ratings, delinquency declined seven basis points to 4.37% in
April, but is up 40% over the year ago period.
Charge-offs climbed 77 bps to reach 9.66%, the third consecutive record
result and 51% above year earlier levels. Monthly payments rates have
exhibited some fairly typical seasonal volatility early this year, but
are now hovering around 17%. Over the last 24 months, the prime rate has
dropped 500 bps to 3.25%, while gross yield has declined by only 122
bps. Fitch says this resiliency is partially attributable to the
significance of fee income relative to interest income in recent years,
however, it also reflects the effectiveness of the pricing actions that
many card issuers have taken in advance of regulatory and legislative
changes. But, the incremental yield generation, while robust, is not
substantial enough to completely offset the increase in charge-offs.

CREDIT CARD ABS PERFORMANCE
YIELD MPR
Apr 08: 18.50% 18.61%
May 08: 17.27% 18.65%
Jun 08: 17.42% 19.54%
Jul 08: 17.05% 19.54%
Aug 08: 17.40% 19.21%
Sep 08: 17.13% 18.57%
Oct 08: 17.05% 18.42%
Nov 08: 17.01% 15.96%
Dec 08: 17.21% 17.27%
Jan 09: 16.00% 17.15%
Feb 09: 16.83% 15.78%
Mar 09: 17.66% 16.48%
Apr 09: 18.01% 16.98%
Source: Fitch Ratings

More Credit Card ABS Goes Under the Microscope

5, Country, Priority, UNITED STATESBy Robert McKinley 06/03/2009

Moody’s has placed on review for possible downgrade 36 classes of asset-backed securities of the “Discover Card Execution Note Trust,” “DiscoverSeries” and the “Discover Card Master Trust.” The review of the asset-backed ratings is driven by deterioration in some of the Trust’s key collateral performance metrics as well as June 1, 2009
downgrade of Discover, the seller/servicer of the Trust. The
annualized gross charge-off rate reached a record-high 9.11% in April
2009 and the delinquency rate was 5.55%, much higher than 4.10% a year ago. The Trust’s average principal payment rate has fallen to about 16.5% from 18.8% a year ago. Meanwhile, Fitch Ratings has downgraded the ratings on the senior notes and has also placed the subordinate notes and cash collateral accounts issued by “1st Financial Credit Card Master Note Trust,” “1st Financial Credit Card Master Note Trust II” and “1st Financial Credit Card Master Note Trust III” on “Rating Watch Negative.”
The rating actions are a result of weaker than expected actual charge-off and delinquency rates reported on all three trusts since the beginning of the year.

Fitch Puts 1/3 of ABS Transactions Under Review

5, Country, Priority, UNITED STATESBy Robert McKinley 05/27/2009

Fitch Ratings’ “SMARTView” has placed 194 classes of U.S. credit card
ABS transactions “Under Analysis”. The 29 classes of
U.S. credit card ABS transactions issued by 1st Financial Bank have
extended their ‘Under Analysis’ status from the previous month, awaiting
additional analysis or information. Fitch will be issuing a rating
action within 30 days. Of the 619 classes of Fitch rated U.S. Credit
Card ABS transactions
totaling $ 299.4 billion, 396 were designated with a SMARTView date of
May 26, 2009, indicating that no in-depth review is necessary.

Vast Majority of Card ABS is Holding Up

5, Country, Priority, UNITED STATESBy Robert McKinley 05/19/2009

A recent review has found that the vast majority of credit card ABS classes remain well insulated from loss. The robust credit card structures combined with bank efforts to actively manage risk and in some cases increase transaction level credit enhancement have resulted in Fitch affirming 467, or 98% of its credit card ABS ratings including all ‘AAAs’. However, Fitch has revised 76 ratings to Rating Outlook Negative and 10 ratings were placed on “Rating Watch Negative.” Fitch Ratings also placed all 29 classes of U.S. credit card ABS transactions issued by 1st Financial Bank ‘Under Analysis’. Last month, 206 classes of Fitch rated U.S. credit card ABS transactions had ‘Under Analysis’ status, which Fitch has since reviewed. In the most recent review, Fitch applied a custom charge-off forecast for each trust. This forecast was derived by applying delinquency roll rates observed over the last six months to current delinquencies and incorporating the effect of Fitch’s unemployment forecast of 10% by early 2010.

Fitch’s Card ABS Review Affirmed at 98%

5, Country, Priority, UNITED STATESBy Robert McKinley 05/12/2009

Fitch Ratings’ credit card portfolio review indicates that
the vast majority of credit card asset backed security (ABS) classes
remain well insulated from loss. The robust credit card structures
combined with bank efforts to actively manage risk and in some cases
increase transaction level credit enhancement have resulted in Fitch
affirming 467, or 98% of its credit card ABS ratings including all
‘AAAs’. However, as credit card charge-offs and delinquencies are
setting record highs and are expected to continue increasing throughout
2009, Fitch has revised its Rating Outlook to Negative for several
classes of credit card ABS and placed certain classes on Rating Watch
Negative. Specifically, 76 ratings are revised to Rating Outlook
Negative and 10 ratings are placed on Rating Watch Negative. In the most recent review, Fitch applied a custom charge-off forecast
for each trust. This forecast was derived by applying delinquency roll
rates observed over the last six months to current delinquencies and
incorporating the effect of Fitch’s unemployment forecast of 10% by
early 2010. Fitch’s research has shown that credit card charge-offs are
highly correlated to the unemployment rate, with a 1:1 relationship for
prime credit cards. Fitch will continue to monitor macro-level economic conditions and the
impact on industry and trust level performance variables, and update the
Rating Outlooks accordingly.

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