Canadian credit card ABS provides good diversification as well as spread pickup for U.S. buyers, according to a Citigroup Global Markets report released today.
The report said that U.S. senior credit cards have tightened 10 basis points to 15 basis points year-to-date and currently yield eight basis points to 20 basis points over Libor for generic three- to five-year classes.
In July, Royal Bank of Canada (RBC) issued two U.S. dollar-denominated tranches under its Golden Credit Card Trust (GCCT) that totalled $1.15 billion and yielding 45 basis points over Libor for the three-year class and 57 basis points over swaps for the five-year class. These tranches provide a 15 basis point to 25 basis point pickup to generic U.S. bank credit cards, analysts stated.
They added that GCCT issued over $2.9 billion of 144A U.S. dollar-denominated senior credit card ABS over the last year as the issuer took advantage of negative net supply in the U.S. credit card ABS market over the past few years. Buy-and-hold buyers bought most of the supply while secondary trading volumes are still limited, Citi analysts stated.
Analysts think that U.S. dollar-denominated supply of Canadian credit card ABS will increase since they think that market technicals will remain attractive. They believe that RBC’s credit card ABS program provides good value based on GCCT’s good credit performance, high payment rates and rising visibility in the U.S. dollar ABS market.
Analysts also looked at RBC’s credit card ABS program and highlighted GCCT’s performance, structure and collateral characteristics.
They focused on the trust's stable performance and said that GCCT’s chargeoff rate has stayed stable during and after the financial crisis, ranging from 2% to 4% since July 2008.
Its delinquencies averaged 2.3% over the last four years, ranging from 1.7% to 3.0%. The trust also has a high payment rate, they said. The rate has averaged 40% in the last four years, which is considerably more than that of the Citi Credit Card Index that ranged from 15% to 20% since July 2008. According to analysts, many borrowers in the GCCT collateral pool utilized their credit cards for convenience instead of a credit tool.
