Roughly 34% of outstanding credit card trust balances are set to mature by the end of next year. This demonstrates well-balanced master trust debt maturities in the sector, according to a Citigroup Global Markets report this morning.
Although credit card master trust issuance has increased recently, this year's runoffs have exceeded new issuance by about $32 billion (or $63 billion of runoff versus $32 billion of year-to-date new-issue supply), analysts said.
The decrease in outstanding credit card ABS debt has resulted in tight technical conditions as well as tightened spreads, they added.
Additionally, most of the new-issue supply for the past few years has been fairly short, in the three-years and shorter range. This has shortened the average debt maturity ladder for credit card master trusts, analysts said. They added that five years is the usual sweet spot for new-issue supply. But, recently a few trusts have gone against this trend and have issued in the seven- and 10-year maturity range. The maturity lengthening would imply a strong commitment to ABS and will assist in balancing the trend of shrinking trusts, analysts stated.
About 80% of all credit card securitized debt is payable within the next four years. The current $139 billion of total credit card debt outstanding is about roughly 40% of the 2007 record high of $332 billion, they said. In 2007, revolving credit rose at an annualized 8.5% pace and banks have funded a bigger portion of their credit card book via ABS.
But, revolving credit has more recently experienced negative to flat growth, at 0.8% for 2008, -8.8% for 2009, -7.4% for 2010 and 0.2% for 2011, Citi analysts reported. Revolving credit increased 0.6% in 1Q12, and 1.3% in the second quarter. As a result, banks cut the percentage of debt funded in the credit card market and have opted to fund more of their book via consumer deposits.
Credit card master trusts will see a decrease in annual credit card runoff with $34 billion set to mature in 2013 and $29 billion in 2014. Roughly $95 billion and $52 billion matured over 2010 and in 2011, Citi analysts said. Year-to-date credit card runoff has reached $53 billion with $10 billion remaining. Although most trusts issue debt with an average maturity of five years, some trusts have issued for as long as 30 years, they added.
Credit card ABS have seen an uptick this year, and more issuers have returned to the market to show their ability to diversify funding. The rating agencies want to see proof that banks can access diversified funding sources. This might be a reason for the pickup in supply, Citi analysts said. U.S. revolving credit growth does not merit the credit card ABS supply upturn since both June (at -4.6%) and July (at -6.7%) 2012 saw negative growth rates.
Citi analysts said that year-to-date, credit card ABS supply registers close to $32 billion, which is the most since 2009. This was when annual supply topped $46 billion. Recent new-issue maturities range from three to 10 years, which analysts said showed the market’s versatility and depth.
About 26% of the credit card ABS market matures in 2013, and approximately 91% matures within five years.
Analysts concluded that they expect banks to still use the credit card ABS market, although low revolving credit growth as well as attractive funding alternatives should push annual new issuance to settle in the current range. They think that banks will replace maturing debt maturities, but without a rise in revolving credit growth, they expect supply to reach the $25 to $35 billion range in the next few years.
