HSBC Finance Corp.'s acquisition of once-harrowed credit card issuer The Metris Companies, makes Metris the latest in a long line of consolidation moves in the credit card sector. The consolidation streak has become so hot in recent months that further consolidation has become more of a question of when,' rather than if.' "This was kind of anticipated," said an ABS strategist.
The deal is seen as a positive for Metris, whose corporate debt ratings have been in the low end of the non-investment-grade pool, at B3/B-/B-' by Moody's Investors Service, Standard & Poor's and Fitch Ratings, respectively. Within hours of the acquisition announcement, all three major rating agencies had placed Metris' corporate debt on watch for a possible upgrade. HSBC is rated Aa3/A/AA-.'
It is doubtful, however, whether the acquisition will translate into more ABS issuance by the company. Metris issued just under $900 million in 2004, but well shy of its yearly volume in its ABS heyday of the late-90s and early 2000s. Meanwhile, the Household Master Note Trust, HSBC's most recently active credit card trust, has not issued a deal in two years. As with other similar situations, sources believe it is likely Metris will retain some presence in the ABS market, but do not expect its issuance to skyrocket any time soon. Metris currently has around $4 billion in ABS outstanding.
Metris spokesman Jeff Grosklags said the company will continue business as usual in the securitization markets until the acquisition is finalized. According to the company's latest earnings call, that means a $500 million to $600 million deal is expected in the second half of 2005, as part of an effort to refinance $800 million of outstanding ABS maturing in 4Q05. Grosklags noted that announcement was made before the acquisition, and is not set in stone. Grosklags could not comment on what Metris's issuance picture would look like after the acquisition is closed.
"This is clearly a boost for Metris," said an ABS analyst, noting that with a highly capitalized parent company such as HSBC, Metris will have more funding options and will be able to choose when and where it turns for financing. "Rather than fund to live,' they can live to fund.' Basically they can be more optimistic as to when to fund," he said. Michael Dean, managing director in the ABS group with Fitch, believes investors will also likely view the acquisition as positive, which will almost certainly result in better pricing on future deals.
The credit card industry has been trending toward consolidation for the past 10 years, but has seen that trend speed into overdrive in recent months. Washington Mutual Inc. acquired Providian Financial Corp. in June, around the same time that Citigroup Inc. acquired the portfolio of Federated Department Stores. A little less than a month later, Bank of America announced its acquisition of MBNA Corp.
The oversaturated credit card market of the past several years has caused a slowdown in new receivables growth, and more consumers are shifting away from credit card debt and into refinancing options such as home equity lines of credit. The only way for some monoline credit card issuers to survive is to be acquired, and further consolidation is expected, with American Express and Capital One Financial still seen as likely takeover targets.
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