Fitch Ratings continues to predict a negative outlook for the U.K. credit card ABS sector. Recent performance trends support this, as they demonstrate a general decline across the sector.
The agency has downgraded the class C notes of both the CARDS and CARDS II trusts to ‘BB’ from ‘BBB-’, while maintaining its Negative Outlook on these transactions. The class B and class A notes were affirmed at ‘A+’ and ‘AAA’ respectively.
Additionally, Fitch maintained the Stable Outlook on the class A notes, and changed the Outlook on the class B notes to Negative from Stable.
Fitch believes that the currently assigned ratings are an accurate representation of the risk presented by these trusts. However, there is also concern that the current drivers of the recent credit performance deterioration will continue to impact trust performance.
According to Fitch, while most trusts should be able to withstand the general deterioration, the current credit enhancement may not be sufficient if the speed of decline should increase.
While originators have taken action to improve performance, they are working against the downward pressure exerted by high delinquency and charge-off rates, as well as the continuation of the macro-economic deterioration that is putting a strain on cardholders.
The performance continues to deteriorate despite the efforts of debt management programs, which, Fitch said, will have only a short-term affect. These programs can potentially dilute the quality of the underlying receivables in the trust, as well as delay charge-offs and possibly overstate the levels of excess spread available.
The agency offers comfort for trusts by citing the structural stability, which presents excess spread trapping, additional subordination, or receivable buy-back schemes in the case of certain trusts.
