EFG Eurobank last week priced its first revolving credit card deal from the Karta Master Trust structure, which through structural enhancements performs much like the U.K. styled credit card master trusts. Its the first credit card deal out of Greece and also reignites activity for publicly placed credit card securitizations in non-U.K. Europe (see ASR 6/27/05).

"Karta serves as a testament to the evolving Greek credit card market that has developed in the last few years," said one analyst at Fitch Ratings. "The level of borrowing is increasing and the market is quite dynamic. Greece is catching up."

EFG Eurobank is expected to come to market two to three times a year under its new credit card master trust, evidence that there is now critical mass to do these types of deals. "If you look at Egg [Bank], they were never able to grow in France but perhaps Greece is the watershed moment and maybe the catalyst in Europe," said one market source. "We could see this happen in other countries."

Eastern Europe is another area that market players are patiently eyeing and where a credit culture is definitely on the rise. However the next logical candidate will be Turkey, said one source because the Greek structure readily conforms to Turkish legislation.

Karta 2005-1 is a 750 million ($913 million) five-year note offering via lead managers Deutsche Bank Securities and Merrill Lynch. Underwriters priced the three tranches at the tight end of guidance at 15, 32 and 60 basis points, respectively, over Euribor for the triple-A, single-A and triple-B rated notes. Indeed, investor demand was strong for the groundbreaking transaction, with price talk having been revised tighter mid-week. Spread talk had initially been set in the 17 basis point area over Euribor for triple-As, 32 to 35 basis points over Euribor for single-A and in the 60 to 65 basis point range over Euribor for triple-B rated notes.

While pricing was outside of its U.K. card counterparts, the structure achieves the same economic effects as a typical U.K. credit card structure, reported Fitch Ratings analysts. The transferor-deferred purchase price is equivalent to the seller-share concept in U.K. transactions. Receivables collections and losses are ultimately shared between the investor and transferor interest on a pari-passu basis. "It proved a little difficult when analyzing it and making it work took some time," said one source working on the deal. "One level below this and the structure looks exactly like a U.K. deal."

However, on the rating agency front there were some issues with the structure. "[The rating agencies] were familiar with the structuring but the issue is that it's a new jurisdiction and card holders behave slightly different," said a banker source working on the deal. Greek credit card holders tend to pay at a slower rate than U.K. credit card holders, which changes the bullet repayments and amortization structure, the source added. The main concern was how quickly investors would receive funds in the case of a payout event. The structure mitigated this concern by installing a longer amortization period and, in some cases, spread trapped cash beginning on day one - a feature not usually seen in other credit card structures.

An account is set up in Karta's name and will be available to all tranches. At closing, EFG Eurobank will deposit an amount equal to 0.5% of the series 2005-1 investor interest - the minimum required amount of the spread account - into Karta's account. Greater amounts will be trapped should excess spread fall below 5.5%, explained Fitch analysts. In addition, further amounts of finance charge collections may be trapped in the spread account if the three-month-average MPR moves below 5%.

The pool backing the deal includes almost 914,000 accounts with a weighted average balance of 1,137 and 2,623 average-limit - higher utilization rates than typically found in U.K. transactions, but with lower credit limits. Sources close to the deal said the structure is adaptable to any revolving credit.

"You now have a structure that works under the true-sale Greek ABS law," said one source. "You could roll this out across other asset classes - as long as the issue is at least somewhere between 725 million to 750 million. Others will be able to adapt structure and work it through. Our understanding is that there is reasonable interest from other Greek issuers outside the credit card sector interested in issuing under this structure," the source added.

Structuring the deal after U.K. models under the Greek true-sale legislation provided its challenges because certain aspects of the traditional master trust concept are not recognized under Greek law. For example, Greek legal framework does not recognize beneficial interest and requires that each receivable be sold separately to Karta APC, designated as an asset purchase company, which has the same function as an SPV. Only the receivables are sold and the accounts remain with EFG Eurobank.

Karta APC pays for the receivables by issuing a global loan note to a master SPV, dubbed Karta LNI, and paying a deferred purchase price to EFG Eurobank. Collections will be commingled with non-securitized receivables, meaning the servicer must separate collections on each business day. The securitized receivables are then transferred to a segregated account held with EFG Eurobank on a daily basis. These amounts are then transferred to a Deutsche Bank AG account in the name of the Karta APC within one business day.

"The relatively low payment rate on EFG Eurobank's credit card portfolio is significant," said Alexandra Gropp, a credit analyst with Standard & Poor's. "Low payment rates are common in continental Europe and do not necessarily indicate a lower credit quality. It indicates that credit cards are used as a loan product and that there are more customers who revolve their credit card balances every month. The low payment rate is reflected in the enhancement levels."

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