Having increased its loan originations to nearly $30 million last quarter, The Credit Store (TCS), a subprime credit card issuer based in South Dakota, intends to place its first rated securitization this fiscal year (ending June 30, 2001).
The company has already been an innovator in the private market, placing four non-rated revolving securitizations into regional banks, via underwriter Miller & Shroeder.
"We have not had the volume to do Wall Street deals," said TCS's Chief Financial Officer Michael Philippe. "We've basically brought our securitizations from Wall Street to Main Street."
The main difference between TCS's securitization facilities and traditional credit card securitizations is that there is no rated piece of paper, said Jerry Tabolich of Miller Shroeder. Further, the bank sells interest in the transaction to a network of community banks, as opposed to traditional capital markets investors.
While TCS does not receive the same level of pricing as a larger credit card issuer would in the capital markets, the relatively cheap transaction cost - bypassing rating agencies and Wall Street - offsets the price of funds.
In essence, said Philippe, TCS and Miller Shroeder have created a cost-effective vehicle for securitizing small portfolios of credit cards.
In addition to direct loan origination, TCS's business model is also based on acquiring non-performing portfolios for pennies on the dollar.
For the first quarter (ending Sept. 30), TCS acquired $550 million in non-performing consumer debt. Of that portfolio, the company anticipates turning 5% to 10% of the acquired debt into new accounts.
"It's a nice compact business model," Philippe said. "We acquire non-performing portfolios, we use technology and modeling to originate new performing accounts... when they're seasoned we securitize and/or sell the accounts to other credit card companies."
TCS continues to service the remaining accounts and/or repackages them and sells them into the secondary debt sales market.
The company recently added Kevin Riordan, TCS's president and chief operating officer, to its board of directors. Riordan previously ran Long Beach Acceptance Corp. and Alliance Home Funding, now part of Superior Bank. He has been with TCS for three years.