Egg Banking released a statement last week clarifying how it plans to address the accounting discrepancies within the Pillar credit card Master Trust. Starting in the beginning of 2007, Egg's 0.83% accounts and Individual Voluntary Arrangements (IVAs) will both be treated as defaulted accounts for the purposes of reporting on Pillar's performance. The resolution should bring an end to uncertainties about the trust's credit profile that began last summer.

Egg stated that it would treat any new IVA as a defaulted account for the purposes of its trust. Also, on a monthly basis, accounts that have not made a payment of 2% for 12 months will be treated as effectively defaulted. Previously, cardholders who entered into an IVA, or had restructured to make minimum payments of 0.83% per month, were not treated as delinquent or charged off as long as the borrowers made the payments agreed upon under the arrangement. The statement does not make clear, however, if payments of less than 2% will be treated as arrears or whether these accounts will simply be charged off after 12 months.

The news, combined with the recent acquisition of Egg by Citigroup, should help to quell rating agency concerns about the company's credit card ABS. Moody's Investors Service still has the Pillar Master Trust Class C notes on review for downgrade. "This should pave the way for a reinstatement of the junior bonds' original ratings, in our opinion, subject of course to pool and structural credit considerations, which may potentially include the issue of deeply subordinated bonds," said Ganesh Rajendra, managing director and head of securitization research of Europe and Asia at Deutsche Bank.

According to Societe Generale analysts, Pillar's reported January results showed an increase in arrears and charge offs as a result of its new policy. Charge-offs increased to 7.47% in February from 5.07% in January, while 30 to 59 days arrears jumped to 3.75% in February, up from January's 1.39%. Excess spread was 4.69%, down from 5.36% in January.

"The increased charge offs have depleted excess spread - only 4.4% last month - and 90 to 180 and 180 plus day arrears are likely to rise as the non-paying accounts roll through delinquency to charge off after 12 months," SG analysts said in a report. "High charge offs, as those accounts already in the trust roll through to default, combined with increased arrears will reduce performance for the year ahead. We believe this makes an upgrade from Fitch Ratings unlikely - it downgraded the Class C notes to BBB-' from BBB' in October."

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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