The market was pleasantly surprised by last week's series 2004-A pricing from the Providian Financial Gateway Master Trust. The transaction was also Providian's first-ever Gateway offering with a senior/subordinate structure - and it featured the first natural double-A rated class ever in the credit card sector. While many gauged the market reception, particularly the double-A rated B class, the phenomenon is unlikely to spread throughout the sector, sources said.
"This structure is certainly not typical but it was a huge success for Providian," said Brian Wiele, U.S. syndicate head at Deutsche Bank Securities, which led the transaction. "But this structure is not necessarily for all issuers," he added. Wiele noted the deals increase to $750 million from $500 million and pricing levels inside of initial guidance.
For the issuer, it represents a return to the subordinate sectors of the market, where investors haven't had a chance to purchase PGMT subs for over three years. Providian did this at a seemingly cheaper funding cost than it would have had if it wrapped the deal, pricing its three-year seniors at 23 basis points over one-month Libor versus the 30 basis points over that its December 2003 offering cleared the market.
The collateral for the double-A class in the deal was essentially carved from the other three tranches, at the primary expense of the triple-As.
"Instead of adding enhancement for a larger triple-A class, it looks like they sliced the excess triple-A collateral into a double-A," a source at a rival monoline credit card issuer said.
"Theoretically, any issuer could carve out an Aa2' class," said a rating agency source who preferred to remain anonymous, citing the Rule 144A transaction's private status. "But for most issuers, it's uneconomical; there would need to be a lot of enhancement."The triple-A class of Providian Gateway 2004-A was supported by 47% enhancement, which gave Providian plenty to carve out for the sector's first natural double-A rated bonds. Of this, the double-As represented only 8% of the deal. PGMT 2004-A also has a funded 3.5% segregated reserve account, which could trap excess spread should the deal hit performance triggers.
The company was mum on future offerings having the same structure, saying only that it would "take advantage of opportunities as they arise," noted Providian spokesman Alan Elias.