HSBC's U.K card program, Affinity 001, saw its 4% excess spread trigger breached last week, causing further cash trapping, but analysts at Fitch Ratings said the breach was not a cause for concern.
The transaction has seen negative trends in excess spread levels over the last two years with a more marked decline in the last six months, according to Fitch. Affinity's three-month average excess spread was reported as 3.81%, leading the trapping to increase to 3% from 1.5%. "Noteholders benefit from the trapped excess spread, if excess spread falls below 0%, early amortisation will occur," said analysts at The Royal Bank of Scotland. "Excess spread increased month-on-month in May and June as portfolio yields increased; however, charge-offs continued to rise to 5.76% in the latest period from 3.99% a year ago and payment rates slowed to 14.23% from 16.85%."