Barclays Bank Delaware on Aug.13 filed an S-3 with the Securities and Exchange Commission for a new Safe Harbor-compliant master trust called Dryrock Issuance Trust.

This is the first that would fall under the Federal Deposit Insurance Corp.'s (FDIC) new rule that became effective on December 31, 2010.

Barclays' new trust, since it was just formed, must comply with the FDIC’s new regulations to qualify for Safe Harbor, Citigroup Global Markets analysts explained in a report released today.

They said that the Safe Harbor refers to the agency’s treatment of securitizations in receivership or conservatorship.

Investors rely on the Safe Harbor for comfort that the assets are isolated and bankruptcy remote from the seller, analysts explained. It also assures asset-backed buyers that the agency acting as conservator or receiver will not interfere with their economic interests in the pledged securitized assets.

Citi analysts said that the old rules tied Safe Harbor eligibility to accounting treatment while the new regulations define the documentation and risk retention standards that limit the agency’s powers as the potential receiver or conservator of the sponsoring bank.

The new regulations still protect assets transferred to bank-sponsored ABS vehicles under FDIC receivership or conservatorship, analysts explained. The changes are in the qualification rules for Safe Harbor, which include risk retention, expanded disclosure and the right of repudiation, among other things.

The 2010 rules permanently grandfathers existing vintage master trusts, while newly formed trusts must comply with them.

Barclays Bank manages a portfolio of roughly $11 billion of co-branded and non-co-branded credit card accounts. Dryrock’s largest co-branded relationships include U.S. Airways, L.L. Bean, Frontier Airlines and Apple, analysts reported.

The New Trust

The S-3 filing for the bank's new credit card trust,, which calls for the issuance of Class A and B notes, contemplates issuing up to $3 billion of notes.

The Dryrock trust seems to be very similar to the old-style structures and provides similar bondholder protections and triggers, Citi analysts said.

They noted that the Class B notes will not be offered as part of the prospectus supplement but will be acquired and held by the issuing entity's affiliate.  The pool asset disclosures, static pool information and credit enhancement (CE) levels are still not disclosed in the preliminary filing.

These CE levels are probably still being negotiated with rating agencies, Citi said. Many trust structure provisions seem to be fairly standard such as an early amortization trigger and a springing cash reserve account. The reserve acount in credit card structures is typically initially unfunded and is required to fund when excess spread is equal to or less than 4.0%.

According to Citi, FDIC's vast powers were always in place in the “old” safe harbor regime even though they were not spelled out in the master trust prospectus.

Analysts said that although there are only a few isolated cases of early amortization in the whole credit card market history, the regulator still exercised some of these rights in the past.

For instance, the agency increased the servicing fee percentage and elevated the servicing fee priority in the waterfall during NextBank's failure. It also declined to fund new card purchases in NextBank's and Advanta Business Trust's insolvencies.


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