After a quiet August, credit card securitization has resumed with a vengeance in September, with over $5.6 billion of notes sold so far.
Citibank is the latest to come to market, tapping its credit card issuance trust for another $1.1 billion of class A notes this week. The Series 2014-A8 was more than doubled from its original size of $500 million. The 3.5-year notes, rated Aaa’/ AAA’ by Moody’s Investors Service and Fitch Ratings respectively, priced at 28 basis points over interpolated swaps.
Earlier this month Citi priced its $650 million series 2014-A7 offering at 20 basis points over one month Libor.
Also upsized and priced this week was the $1.5 billion three-year transaction from American Express. The deal, AMXCA 2014-3 was originally sized at $678 million, is rated Aaa’ / AAA’ by Moody’s and Fitch respectively, and yields 25 basis points over swaps.
Other offerings this month included deals from Barclays’ Drydock credit card trust, Bank of America, and Capital One.
The Bank of America deal, BACCT 2014-A3, was upsized by about a third to $1.1 billion from $750 million. The three-year, triple-A rated notes priced at 29 basis points over the one-month Libor. Moody’s, Fitch and S&P rated the deal.
Barclays’ series 2014-3 was upsized to $750 million from $500 million. The five-year notes, rated AAA’/ AAA’ by Fitch and S&P, priced at 48 basis points over interpolated swaps.
Capital One Bank also sold $550 million of notes backed by credit card receivables from its Multi-Asset Execution Trust, according to a deal document. The deal was originally sized at $500 million. The 2014-4 series of Class A notes, rated AAA’ by S&P and Fitch, priced at 36 basis points over the one-month Libor.
None of the sponsors are really dependent on securitization to fund credit card lending; most can rely on deposits. They tap their programs as much to keep an alternative funding channel open, and issuance by one sponsor can trigger a “me too” response from others.
September’s burst of supply brings credit card issuance for the year to date to $36 billion, according to a report published this week by Deutsche Bank. Citigroup, at 27%, accounts for largest chunk of issuance.
The chart below show how other banks rank in year-to-date credit card issuance.
There is some value for investors to be found in pricing spreads, as the sector has not have recovered much from the spread widening of 2013, according to research from Wells Fargo. In September 2013 floating-rate spreads for two-year bonds were at 20 basis points over one-month Libor; three-year paper priced at 30 basis points and five-year notes priced at 39 basis points.
At the same time charge-off rates remain at record lows, and excess spread and monthly payment rates at record highs. The charge-off rate dropped to just above 2% in August. These low charge-off rates continue to support excess spread at unprecedented highs.
“Senior bonds from credit card ABS offer good relative value,” the report states. “Credit card ABS credit performance has been remarkably strong for the past four years.”
Low charge-off rates continue to support excess spread at unprecedented highs. According to Moody's, the dip in charge-offs boosted the excess spread index increased to 13.55%, up five basis points from of 13.50% the previous month.
