In a big week of news from The Spiegel Group, the retailer announced that its First Consumers National Bank subsidiary will seek to be replaced or resign as servicer on on its bankcard portfolios.

The retailer disclosed this in an 8-K with the Securities & Exchange Commission. First Consumers was issuer on two public outstanding bankcard securitizations, the $250 million FCNB 1999-A and the $560 million FCNB 2001-A.

Apparently, the Office of the Comptroller of the Currency would like to avoid a repeat of the NextCard wind-down, when the cards were kept "open-to-buy" by the Federal Deposit Insurance Corp. The FDIC hoped the portfolio would retain value while for sale. In the end, losses to the FDIC - which was funding new purchases - were exacerbated. The OCC has ordered First Consumers to stop accepting new charges on or before the end of April.

In a rare disclosure, Spiegel stated early last month that it expects the FCNB deals to breach the three-month negative excess spread trigger for its February reporting period (Feb. 28). If that pans out, the trusts will begin rapid amortization.

For opportunists, FCNB bonds trading at a steep discount could offer value during rapid repayment, if the investor believes the portfolio won't quickly deteriorate, as has been the case historically when consumers lose their purchasing privileges.

According to Barclays Capital researcher Jeff Salmon, payment rates on the FCNB deals are relatively high, which is positive especially for senior noteholders who will be paid off at the top of the waterfall.

In its 8-K last week, Spiegel reiterated that it is in default with its current lenders and that it may not be able to sufficiently finance its operations going forward. The company intends to keep its private-label card business intact. Two of Spiegel's three outstanding private-label securitizations are wrapped by MBIA, which may be in a position to declare a rapid amortization of those deals as well. According to Spiegel, the third private-label credit card deal may trip a performance-based trigger, which would also "entitle" MBIA to enforce an early amortization of the remaining deals.

As of its February 10-K, Spiegel was not in compliance with provisions set up by MBIA last May, when the monoline and the retailer scuffled over whether a credit-based early amortization trigger had been hit on the two MBIA deals. MBIA also sought to have FCNB resign as servicer on the bankcard deals and liquidate the portfolio. Investors in the MBIA-wrapped deals are not exposed to losses associated with these events.

Moreover, according to Salmon, having MBIA on the private-label deals may indirectly benefit the bankcard noteholders, as the servicing unit is the same for both portfolios. It might be in MBIA's best interest to make sure the servicing stays intact. Spiegel's private label-deals were issued through the bank subsidiary.

Salmon anticipates the servicing staff on the deals will be retained unless a suitable replacement is found. Should the company pull out of this financial crunch, Spiegel intends to issue future securitizations from Spiegel Inc. without the use of a bank subsidiary.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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