Despite the interruptions from Hurricane Sandy and the Thanksgiving holiday, as of Nov. 29 the U.S. securitization market managed to price 41 transactions at $25.2 billion, This figure includes CDOs and CMBS, according to the ASR Scorecards database. However, the month's issuance is a little lower than October's $33.1 billion and September's $29.8 billion.
A highlight in the month was Barclays Bank's first Securities and Exchange Commission-registered credit card platform, called Dryrock Issuance Trust (DROCK), which issued $1 billion bonds through Series 2012-1 worth $700 million and 2012-2 worth $300 million. Wells Fargo Securities analysts called the issuance "the most interesting November event" in a Nov. 27 report. The transactions were rated by both Moody's Investors Service and Standard & Poor's. DROCK is collateralized by Barclaycard U.S. brand credit card receivables.
"New entry into the market indicates to us that ABS are likely to remain a viable funding option for large commercial banks despite the regulatory and accounting obstacles to securitization in place over the past few years," wrote Wells Fargo senior analyst John McElravey in the same report.
On Nov. 9, Barclays issued two 'AAA' tranches. According to JPMorgan Securities, the DROCK three-year 'AAA' tranche priced at 20 basis points over swaps, which was eight basis points wider versus a tranche with the same tenor and rating issued by the American Express Credit Account Master Trust the previous week. Meanwhile, the DROCK transaction's two-year 'AAA' tranche priced at 15 basis points over LIBOR, which JPMorgan analysts said is nine basis points wider than benchmark card names. DROCK's 2012-1 and 2012-2 deals comprised a third of last month's issuance as of Nov. 27. November's tally brought new-issue credit card ABS volume to $28.1 billion for the year to date, according to Wells Fargo.
November's credit card deals just replaced the $3 billion of maturing bonds, and there's an added $6.9 billion in credit card ABS set to mature in December. The net dip in outstanding credit card ABS in 2012 is expected to be $38.3 billion.
JPMorgan analysts said that DROCK trust's performance metrics are "superior" to those of its JPM bankcard index, given DROCK's higher gross yields, payment rates and excess spread as well as lower charge-offs and delinquencies. Analysts anticipate that the spread tiering on DROCK will narrow as the program's brand recognition increases, and noted that they will be including the trust in their index once three months of reported data are accumulated.
Another DROCK First
Another feature of the DROCK trust is that it must comply with the Federal Deposit Insurance Corp.'s (FDIC) new regulations to qualify for safe harbor, Citigroup Global Markets analysts explained in an Aug. 23 report. This trust was the first that fell under the FDIC's new rules that became effective on Dec. 31, 2010. (The rule permanently grandfathered existing vintage master trusts.)
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. 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.
Another Recent Entrant
DROCK isn't the only recent entrant to the credit card ABS market - Bank of Montreal's (BMO) Master Credit Card Trust II (MCCT) issued U.S. dollar tranches in October. The deal is part of an ongoing trend of foreign issuers accessing the U.S. market to broaden their investor bases. JPMorgan analysts reported that MCCT's three-year, 'AAA' tranche priced at 30 basis points over swaps; that compares with 12 basis points for benchmark U.S. bankcard ABS and 33 basis points for Royal Bank of Canada's three-year Golden Credit Card Trust tranche, which priced a month earlier.
Although MCCT is newcomer, JPMorgan analysts said that BMO has considerable experience as a servicer and originator of credit card receivables and has been securitizing this collateral in Canada since 1997. They added that U.S. buyers have a long performance history to look at when comparing trusts.
