New subprime/nonprime credit card deals are making up a growing segment of the overall credit card market.

Last week, First Premier Bank closed its first term deal, a $110 million transaction via Deutsche Bank Alex. Brown. Deutsche Bank is also lead on CompuCredit Corp.'s $400 million to $500 million deal, which was set to price on Friday of last week.

Still the pipeline for later in the year, Cross Country Bank is said to be nearing its next term deal. The company has, in the past, gone to market with Rothschild, Bear Stearns and ABN Amro. It's rumored that Cross Country has a contract with Rothschild, although the bank would neither confirm or deny it.

Financial Security Assurance, which has wrapped all of Cross Country's previous deals, will likely wrap the pending transaction. FSA was also the surety on the Premier deal.

While subprime credit card issuers like Metris Companies have been accessing the market since the mid-90s, the business segment is making up a larger proportion of the entire industry, sources said. This is beginning to show up in the ABS marketplace.

Excluding private label and retail portfolios, subprime volume has accounted for $3.5 billion in the first half, about 9% of the total bankcard volume, well over the $2.9 billion of subprime card issuance for all of 2000, which was about 5% of the total market, according to Thomson Financial.

These numbers do not take into account the fact that overall volume of prime bankcard issuers has gone through the roof this year, with return-to-market issuers like First USA, which had refrained from ABS in 2000. Further, CitiBank only issued $7 billion in all of 2000, compared to nearly $9 billion in the first-half of this year.

Subprime Players

Currently, the two largest issuers of subprime/nonprime credit cards are Metris and Providian Bank, which issues subprime out of its Gateway program. Reportedly, Providian's Gateway program has grown at a disproportionate rate to its prime card program, and the bank is currently trying to complement the growth with its prime program. Providian has not issued any deals off its prime shelf this year, though it issued approximately $1.8 billion in 2000.

So far this year, Providian has brought about $2.7 billion in Gateway product to market, rotating business among the sureties Ambac, FSA, and MBIA. Metris, on the other hand, tends to tap the market with a senior/subordinate structure.

While smaller players Cross Country and First Premier are not likely to come to market unwrapped, CompuCredit's current deal is braving the waters as a sen/sub, although CompuCredit's first deal, which it closed last year, was insured by MBIA.

CompuCredit triple-A's are said to have subordination in the area of 39%, compared to Metris, which comes to market with its triple-A's in the low 30's, an analyst said.

Subordination on the top piece of unwrapped prime credit card deals range from 10% to 15%. So far Providian has chosen to insure its Gateway deals, although industry sources would not be surprised if the bank rolled out an unwrapped deal down the line, now that investors are used to seeing deals. Officials at Providian were unavailable for comment as of press time.

The Unsecured Card Business

According to Jeff Salmon, analyst at Barclays Capital, many of the unsecured subprime credit card programs evolved from their secured counterparts.

The shift to unsecured subprime was really a function of efficiency, Salmon said, as the administration costs are higher with the secured prorgams.

"In the mid-90s, they started graduating these folks to the unsecured cards," said Ray Galkowski, managing director and head of the new products group at FSA. "Then they started soliciting folks outright for the unsecured cards. These portfolios really started growing in 1997, and then they developed the performance history to come to the capital markets."

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.