Capital One Financial Corp. scooped the credit card industry last week by being the first to provide full FICO score distributions for its credit card trust as will be required on Jan. 1, when Securities & Exchange Commission Regulation AB goes into full effect.
CapOne provided the information as part of the prospectus supplement for its most recent credit card deal, a $500 million, triple-A-rated offering that priced last week via joint lead managers Goldman Sachs and Lehman Brothers. The information broke down the receivables sold into CapOne's Capital One Master Trust by FICO score groups, and according to the percentage of loan balances and percentage of receivables.
According to data from Merrill Lynch, CapOne reported that 12.2% of its receivables were from borrowers with sub-600 FICOs, while 18% were from borrowers with scores between 601 and 660, 31% were from borrowers in the 661 to 720 range and 37.8% had scores greater than 720. CapOne's FICO distribution looked quite different in 2002, when FICO data first became public after signing a memorandum of understanding with the Federal Reserve Board and the Office of Thrift Supervision. At that time, the distribution was barbell-shaped, with 39.8% of borrowers below the 660 mark, 23.6% in the 661 to 710 range and 36.7% with scores over 710.
"CapOne is focused on being as transparent as possible," said CapOne Assistant Treasurer Tom Feil. Feil said once his company had the data for its most recent deal, it decided to post it instead of waiting for the deadline, because it was "the right thing to do for investors." Feil did not think providing the data would garner CapOne's deals a spread advantage over other issuers in the meantime between now and Jan. 1, because deals from the top name prime issuers tend to price so closely together already.
Merrill ABS strategist Theresa O'Neill agreed. "We believe the availability of regularly updated FICO scores can provide valuable insights into the composition of and trends in a trust's portfolio. The dynamic nature of credit card portfolios and the lack of industry-wide loan level databases, however, will limit the ability to distinguish among issuers. As a result, we expect the availability of FICO scores by all issuers will not intensify tiering among issuers in this environment," wrote O'Neill.
Though tiering in the primary market is unlikely, Feil said he hoped the company's early disclosure of the data would enhance its reputation, and pointed also to the fact that CapOne was the first company to provide information on the effects of the new bankruptcy law on its trust.
Indeed, CapOne will be alone in its providing the FICO data only for a short while, as after Jan. 1, all credit card issuers are required to do so. Under Reg AB, the first rule dedicated solely to the offering and sale of ABS, issuers are required to provide FICO scores or another credit metric on the loans in their trusts.
Feil said the FICO information will be refreshed roughly every six weeks and will appear in prospectus information for new deals as it is obtained.
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