Capital One Financial embarked on a roadshow last week, introducing its new de-linked issuance vehicle to investors and answering questions regarding its future in the new regulatory environment. The new issuance vehicle follows in the footsteps of Citibank N.A., MBNA Bank America and, most recently, Bank One N.A. in realizing the benefits of index-eligible, subordinated classes and the ability to opportunistically offer pre-enhanced senior notes.

The inaugural offering from the new trust is expected either the week of Aug. 19 or the week of Sept. 9, with the issuer hoping to avoid the Labor Day holiday. The first deals from similar master note trusts in the past have featured single-A and triple-B rated classes in advance of the triple-A rated senior offerings.

Despite the main purpose of educating investors about the unique twist that differentiates Cap One's de-linked issuance vehicle from the structures already in the market, most questions centered upon the recently announced Memorandum of Understanding (MOU) and its outlook for future growth. The feature, dubbed "scaling" by lead manager Salomon Smith Barney, is meant to remove the extension risk associated with having senior notes supported by subs of varying tenors.

Capital One told buysiders that it expects portfolio growth of 30% for this year and anticipates 20% to 25% growth in 2003. As for collateral performance, chargeoffs, currently at 4.36%, are expected to rise to somewhere in the low-to-mid 5% range through mid-2003. Chargeoffs for the entire industry are expected to increase across the board, assuming bankruptcy reform is signed into law by the end of this year as consumers rush to file before the environment becomes less debtor friendly.

Capital One told investors that the MOU was more a function of regulatory concerns over lenders involved in subprime lending than any activities of Cap One in particular. "After four months of review, regulators looked carefully at three aspects of our operations - asset quality, accounting methods and account management -we had been in compliance with all three," said company spokesman Jim Rothberg.

Cap One also reported to investors its operating cost per account was $70, down from the $92 per account it reported in the second quarter of 1999. Currently Capital One says its cost per account is lower than any other monoline credit card issuer and in line with large diversified banking entities.

FICO distributions, which roiled the ABS market when released in conjunction with second quarter earnings, are not something the company plans to report on a regular basis. As Rothberg notes, that sort of information is not easy to gather and does not change dramatically over time.

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