Discover Financial Services and Scotiabank are each packaging their first credit-card receivables securitizations of the year, amid a sluggish start to the North American 2018 bank-card ABS issuance market.
Discover plans a multiple issuance of $800 million in Class A DiscoverSeries, according to presale reports and prospectus filings by the company this week. Scotiabank (the d/b/a of The Bank of Nova Scotia) on Wednesday priced $600 million in U.S.-dollar-denominated notes through its Trillium trust platform.
The two new deals will add to first-quarter credit-card trust issuance pricings of $5.76 billion, according to Finsight, compared to the $15.2 billion in bank-card ABS issued in the first three months of 2017.
Last December, analysts were projecting modest growth in issuance levels above the final tally of approximately $23.7 billion last year.
For Discover, the two issues through the Discover Card Execution Note Trust (DCENT) include a $500 million fixed-rate 2018-1 and variable-rate, $300 million 2018-2 tranches. Each is supported by 21% credit enhancement, and has been assigned preliminary triple-A ratings from Fitch Ratings, S&P Global Ratings and Moody's Investors Service.
With the new transactions, Discover will have 29 series of Class A notes totaling $15.6 billion outstanding under the trust, along with $1.47 billion in Class B, $1.87 billion in Class C and $1.76 billion in Class D notes, according to Fitch.
The filing comes just more than a month after Discover reported one of its highest-ever net charge off rate of 2.85% in the fourth quarter. But Discover also had an 11% spike in year-over-year net revenue and earnings per share, as well as a 9% growth in its card-servicing portfolio now sized at $67.3 billion.
The issuance will be Discover’s first since October 2017. Last year the company completed seven transactions totaling $5.1 billion, boosting its activity from 2016 when the platform sold $3.1 billion in receivables-backed bonds.
Scotiabank, meanwhile, is packaging an asset-backed offering of domestic Visa, MasterCard and American-Express card receivables from accounts of its prime-quality Canadian cardholders. The Scotiabank deal, Trillium Credit Card Trust II Series 2018-1, features US $600 million in Class A floating-rate notes that priced at one-month Libor plus 25 basis points. The transaction is the trust's first since the Trillium 2016-1 issuance.
Those notes have preliminary triple-A ratings from Moody’s Investors Service, S&P Global Ratings and DBRS.
The bank is also expected to sell Class B notes to be issued in Canadian dollars with a provisional Baa1 Moody’s rating and BBB from DBRS. S&P is not rating the subordinate tranche. The size of that tranche was not disclosed in presale reports.
The Class A notes will benefit from 8% subordination of the Class B notes, plus an excess spread (to be determined) and a cash reserve account that could build up to 5% of the original note balance.
Scotiabank’s credit-card portfolio of nearly 6.1 million accounts had an average outstanding receivables balance of $4.7 billion at the end of 2017, a slight decline from the $5.03 billion level at the end of 2016. Losses have also declined to 4.13%, compared to 4.67%, according to a presale report from DBRS.
Monthly payment rates, which measure the percentage of the receivables balance paid by cardholders, averaged 42.04% in 2017, a “strong” level, according to DBRS. That is an increase from 38.1% as of December 2016. Gross yields are also healthy at 22%.
Scotia Capital and JPMorgan are the bookrunners on the deal.
The two deals contribute to what DBRS has projected will be part of moderate 7% increase in bank credit-card ABS to $25.4 billion this year. Credit-card issuers placing receivables into their trusts this year include Citigroup ($2.8 billion), Bank of America ($1.6 billion), Royal Bank of Canada ($750 million) and Bank of Montreal ($635 million).
Issuance in bank credit-card securitizations grew from $19.2 billion in 2016 to $23.7 million last year as issuers such as Citigroup, Capital One and Bank of America boosted ABS activity. The levels of issuance are below 2014 levels of nearly $30 billion before falling to $16 billion in 2015.