Aeon Credit Service Co., a leading Japanese consumer credit card company, said it plans to issue the country's first credit card receivables-backed securitization.

The 10 billion ($94.5 million) issue is being arranged by DKB Securities Co. and will be launched in early February, confirmed a DKB banker in Tokyo.

The underlying assets are future receivables generated from Aeon card purchases. "Japanese ABS began with securitization of existing assets. But this is the first deal to securitize future assets in Japan," the banker said.

The transaction is structured as a bullet issue with an expected maturity of five years and a legal final of six years. It will be rated Aaa by Moody's Investors Service and will be privately placed with a handful of domestic investors. Pricing will likely range between 10 to 20 basis points over Libor, he added.

While the credit cards involved in the deal resemble "store" cards and are only accepted in Jusco shops - meaning the receivables result only from card purchases and not from cash advances - the transaction indicates the potential for credit card securitization in Japan.

Currently, there are over 1,000 different types of credit cards and over 220 million in circulation, issued by companies ranging from airlines to department stores, as well as banks and consumer finance companies.

The main barrier to securitization of credit card receivables in Japan has been legal in nature. This is because Japan's securitization laws consider credit card receivables resulting from cash advances to be a different asset from those resulting from the actual purchase of goods, and specify a different perfection process for each asset type.

When both types of transactions are performed with the same card, it makes securitization of the different types of receivables harder to execute since it would require two different perfection systems, said one ABS head in Tokyo.

"It raises questions about the commingling of assets, and whether the issuer has the ability to distinguish the two different types. Many issuers don't have the computer systems needed to do this yet," he explained. Also, most issuers - Aeon included - are reluctant to securitize cash advances.

Local culture could also inhibit credit card securitizations from taking off in Japan, where people are known for saving and exercising more financial discipline than credit-happy consumers in the West. "Generally speaking, Japanese people don't like revolving credit cards very much, and like to pay off their balance in full every month. So the size of this asset class is quite small compared to the U.S. and the U.K.," admitted the DKB banker.

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