LAS VEGAS - After one of the most watched events in the credit card industry unfolded in the last half of 2005 with the implementation of the Bankruptcy Reform Act, credit card ABS performance appears to be holding up well and sources expect spreads to continue to remain tight.
Richard Drason, vice president with Deutsche Asset Management, said he expects "no significant spread widening any time soon," and that he prefers triple-A-rated securities over triple-Bs because any potential widening would affect triple-Bs first.
Drason was among several who discussed credit card ABS performance last week at the American Securitization Forum's ASF 2006 conference here.
"It is very tough to find relative value in the credit card sector," Deutsche Bank vice president Kristi Leo said.
Leo added that is partly because only 4% of issuance is non-investment grade. Also, tiering based on issuer and servicer is disappearing. Leo said one issuer to watch is Advanta Corp. because it has brought its charge-off rates in and has increased excess spread and yield over the past year.
Theresa O'Neill, vice president at Merrill Lynch, also expects spreads in the credit card sector to remain unchanged, with a possible bias toward tightening on relatively stable supply. O'Neill also said that since the credit card sector seems to have survived the effects of the Bankruptcy Reform Act, which caused an historic spike in bankruptcy filings last fall, it appears to be in good shape for the future.
"I'm not sure what else could happen to drive spreads wider," she said.
Credit card spreads also seem to have shrugged off any potential impact from the implementation of the Securities and Exchange Commission's Regulation AB, which requires greater disclosures of pool composition, known as static pool data.
"The disclosures in Reg AB will not impact spreads," Leo said. "There is not going to be anything in there to change your opinion on the issuers."
Issuers open with information
In terms of FICO score distribution the new disclosures have a significant benefit, she said. But most credit card issuers have been fairly open with much of the information.
From an issuer perspective, Richard Johns, a director with Capital One Financial, said the disclosures did not have any positive impact on investors.
"We really did not see any major changes from investors because of that," he said. "It was somewhat of a muted response."
CapOne came out with static pool data well in advance of the Jan. 1 implementation of Regulation AB. Johns said it will be four to five years before enough issuers have been collecting the data to make useful comparisons and observe trends.
"[The new disclosure rule] increases transparency, but is not going to change opinion very much," Drason said.
However, he said the data is useful for comparisons between deals.
The housing market remains a topic of discussion for credit card ABS market participants. Most industry experts think the slowdown of home price appreciation will cause an increase in revolving debt such as credit cards, which, in turn, will be followed by increased charge-offs and delinquencies. However, as Leo said, the impact should be limited to credit card deals predominantly consisting of subprime assets.
"Watch out for nondiversified sub-prime deals," she said.
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