Last week both Moody's Investors Service and Fitch Ratings downgraded triple-A credit card notes from Spiegel Inc.'s First Consumers National Bank, Moody's nicking the triple-As (among other classes) from the 2001-A and 1999-A series, and Fitch hitting the 2001-A series, the only FCNB deal it rated.

According to Moody's, this is the first time it has downgraded a bank credit card deal for portfolio deterioration.

"To some degree this card was targeted to subprime obligors, and to some degree the obligors were hit a bit harder in the recent economic downturn than prime and near-prime borrowers," said Will Black of Moody's.

Though Spiegel owns First Consumer, these bankcard deals are distinct from Spiegel's private label portfolio, which has seen its own share of problems lately, as the company has disputed with MBIA over whether or not an early amortization trigger was hit (see ASR 4/29). Investors in those bonds are shielded by MBIA's triple-A policy.

As for the bankcard deals, Black added that changes in underwriting standards on the part of First Consumers have contributed to the deal's poor performance. The charge-off rate in the trust rose to 19% in March, while delinquencies were at approximately 14.35%.

According to Fitch surveillance, First Consumers is still showing a three-month average excess spread of around 4%. The rating agency said that the deterioration of the pool has been much more rapid than Fitch had anticipated. "From where it is in the life of the transaction, it does not withstand our senior stress scenarios," said Michael Dean, credit card analyst at Fitch.

Spiegel had previously announced it intended to sell its credit card operations, but it's not clear whether or not the changing focus of the business has been a factor in the rising delinquencies and charge-offs. First Consumers is in talks with the Office of the Comptroller of the Currency, though details on that front are scarce.

"If a company is going to stop or sell its origination unit, you would guess that some of the servicing personnel are aware of that," a source commented. "That is often a cause of servicer disruption."

Both Fitch and Moody's are keeping the trust on watch negative, pending, at least, resolution of the sale of the platform.

Moody's noted that the Baa2' rated C class in the 2001-A series was confirmed, as the deal had been trapping excess spread for the benefit of that class since breaching triggers last year. "The mechanics of the transaction worked as they should have worked in an adverse situation," said Latonia Dukes, a vice president and senior analyst at Moody's.

Meanwhile, in the bankcard sector as a whole, delinquencies and charge-offs continue to rise, and continue hitting historical highs. According to Moody's, average charge-offs rose to 6.44% in the first quarter, the sixth consecutive quarter of a year-over-year increase. The rating agency said that March's annualized charge-off rate of 7.06% is the second highest it has been since the inception of the index 13 years ago. Moody's index tracks approximately $335 billion worth of bank credit card receivables.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.