With credit card ABS supply down in the first half - due primarily to pending M&A activity - Standard & Poor's anticipates a new issue supply rebound in the second half, reaching $65 billion. With just $27 billion in supply pricing over the first six months of the year, S&P informally surveyed approximately 10 of the leading issuers, reporting last week that "most issuers expect a substantial portion of second-half issuance will refinance remaining maturing deals that total approximately $34 billion," the rating agency said.
Over the same period of 2003, credit card ABS supply totaled $37 billion, 27% greater than in the first six months of 2004. S&P notes numerous performance improvements over the first half of the year.
According to the agency's estimates, of the roughly $57 billion in maturing credit card ABS coming due in 2004, 60% - or $34 billion - will do so in the remainder of the year. Additionally, Discover Card Master Trust has yet to issue in 2004, but is expected to do so. Meanwhile, smaller issuers will likely access the currently favorable market conditions.
The dip in supply in the first half was attributed primarily to pending M&A activity, with the JPMorgan Chase/Bank One closing in the second quarter, Bank of America/Fleet Financial closing in the first quarter and hangover from Citibank's acquisition of Sears Roebuck Acceptance Corp.'s MasterCard portfolio in late 2003.
Some of the decline is related to a pause caused by market consolidation, said S&P managing director Joe Sheridan. Sheridan also believes that going forward, "there is nothing imminent in M&A in the credit card sector."
"The lack of credit card ABS supply in the first half has led to some pent-up demand from investors," he added.
Performance, as tracked by S&P's Credit Card Quality Index, improved significantly over first-half 2003. Downgrades in the quarter were limited to two - both relating to bankrupt retailer Spiegel Inc.'s First Consumers Master Trust series 2001-A on May 4. The trust saw its ratings cut from BB' to B' for the class A bonds and from CCC' to CCC-' on the class B bonds. Both remain on negative watch.
In the first half of 2003, there were 21 classes of credit card ABS downgraded and 14 in the first half of 2002. S&P credited the negative performance to the subprime sector's "worst period of volatility."
One cloud that does hang over the credit card sector is the Securities and Exchange Commission's recent regulatory proposals regarding issuer disclosure. The uncertainty created by the proposals could deter some issuers.
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