One month after Conseco Inc. filed for Chapter 11 bankruptcy protection, the company's private label credit card trust entered early amortization last Wednesday. Triggered specifically by the bankruptcy filing rather than any deterioration in performance, the trust will pay holders back at par, despite trading at a discount throughout the final months of its shortened life.
Pricing in May 2001, the loans in the pool (21%) consisted primarily of receivables generated by Menard Inc., the third-leading home improvement retailer in the U.S. Approximately 18% of receivables came from recreational vehicle loans. Leading up to the trigger event, trading had been limited and the trust issued just one transaction, 2001-A (For details, see graphic).
Totaling $717 million (including retained B class), the issue priced at a discount, as the issuer wanted to keep spreads on its triple-A rated class under 30 basis points versus one-month Libor. Seniors ended up pricing with a coupon of 28 basis points over one-month Libor, paying a discount margin of 32 basis points over Libor at the time.
Upon entering early amortization, an initial principal payment of $375 million was made, accounting for 71% of the CPRT 2001-A principal balance, according to Lehman Brothers researcher David Heike. Of this amount, an undisclosed percentage came in the form of an agreement termination payment on behalf of Menard Inc. Principal collections will continue and note holders will be paid in sequential order. There was no word what company would replace Conseco as provider of Menard store cards. Heike added that the trust continues to report excess spread.
At the time, there were high hopes for the program, as Conseco was still more than a year-and-a-half from filing bankruptcy and the ABS market was in the midst of what was the first of three consecutive, record years of new-issue supply. Conseco hoped that this credit card vehicle would lead it to an untapped borrower pool, who may later be open to other financial services.
Phyllis Knight, then Vice President and Treasurer of Conseco's Finance unit, said Conseco was specifically targeting homeowners with this program in an attempt to "cross-sell" into mortgage products such as home-equity and home-improvement loans (See ASR, 5/21/01). "With this program we wanted to focus on home owners with established credit and then hopefully sell these consumers mortgage and home-equity related loans in the future," she added.