Chase Manhattan Bank, N.A. added $4.5 billion in additional receivables to its First USA Credit Card Master Trust, according to Securities & Exchange Commission filings. The move is seen as an attempt to buttress the trust in the wake of a spike in chargeoffs wrought by recently implemented bankruptcy reform. The trust currently has $6.5 billion outstanding, which is spread over nine transactions, and has not issued a deal since 2001.
While credit card issuers are allowed to add accounts to trusts based on specific parameters built into the structure of the trust, accounts can also be added if bondholder approval is granted. Two years ago, Chase won bondholder approval to amend its Chase Credit Card Master Trust in order to share excess spread between three deal series to avoid breaching early amortization triggers (see ASR 6/9/03).
The First USA trust is currently reporting a 6.23% chargeoff rate and is averaging 3.90% of excess spread among deals outstanding for the November reporting period, down from an average of 4.90% excess spread for the October reporting period. The Chase Credit Card Master Trust, on the other hand, is reporting a 5.87% chargeoff rate and is averaging 4.40% excess spread among deals outstanding for November versus 5.50% of excess spread in October.
The recently implemented bankruptcy reform caused a spike in bankruptcy filings and is causing a corresponding increase in chargeoffs and losses in credit card ABS trusts. Adding accounts is one option issuers have to protect investors against any credit events as excess spread is eroded by the increased losses.
A press representative for Chase did not return a call for comment.
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