Slowed portfolio growth and rising delinquencies have troubled credit card ABS issuer The Metris Companies on the ropes. Researchers at Banc of America Securities mapped out a wind down of the trust, in the event that an early amortization is triggered. Following the most recent monthly performance report from Metris, the 205 basis point spike in chargeoffs triggered the trapping of cash for C class bonds, as the three-month average excess spread dipped below 5.5% despite being bolstered by a larger-than-expected 50 basis point rate cut in December.

BofA researcher Kumar Neelakantan points to the rising chargeoffs, which tallied 18.61% in November up from just 8.21% two years prior as the main concern. Neelakantan estimates chargeoffs will increase further, to the 20% to 21% range. Along with an assumed zero purchase rate for the trust in the coming six months and likely 10% reduction in principal receivables balance, BofA expects principal writedowns for the outstanding C classes of MMT ABS.

The most likely scenario, according to BofA, is that Metris credit card ABS trips the base-rate trigger of negative excess spread over a three-month period. "We are of the opinion that risk of early amortization has increased substantially based on our expected scenario of 10% annual decline where principal receivables balance and any further declines in portfolio yield," Neelakantan added.

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