The securitization industry is preparing to strike back at a U.S. Court of Appeals ruling that allows the Federal Deposit Insurance Corp. (FDIC) to ignore a credit card ABS trust contract's ipso facto clause, which would have triggered an early amortization of outstanding notes from defunct credit card issuer NextBank.

The Bank of New York, as indenture trustee of the NextCard Credit Card Master Note Trust, sued the FDIC, which was appointed as NextBank's receiver in 2001. Essentially, Bank of New York argues that the FDIC acted outside its receivership powers when it refused to honor an early amortization clause upon NextBank's failure. The District of Columbia Circuit of the U.S. Court of Appeals ruled in FDIC's favor, essentially forcing investors in NextBank's credit card ABS notes to wait longer than necessary, under the deal's original contract, to be made whole on their principal.

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