Impressing the asset-backed market with its most recent $600 million credit card-backed transaction that received strong investor demand, mid-tier issuer Metris Companies Inc. is slated to be a strong issuer going forward, with plans to continue to evolve its securitization strategy, said Ralph Than, treasurer of the company.
"It was a very strong transaction for Metris. This was our second issue using the senior/subordinate structure since 1997, whereas in the past, some of our transactions were wrapped," Than said. "We launched the deal at $500 million and upsized to $600 million."
Metris also has plans to come forth with another transaction later this year, Than said.
"We expect to be in the market roughly three to four times a year with roughly $2 billion in annual volume," he said.
The Moderate to Low Income Market
Originally connected with Fingerhut Corp., Metris was founded in 1994 and came forth with its initial public offering out of Fingerhut in 1996. Eventually the company was spun off to the Fingerhut shareholders in 1998, which at the time was the second largest catalog retailer in the country.
Explaining the reason for the separation, Than said, "Metris grew out of Fingerhut - into a financial services business separate from their catalog operations to provide financing and other services to their customers."
Metris' target customer is usually in the moderate to low income segment. This is a characteristic that Than feels sets it apart from big-name credit card issuers such as MBNA America Bank or Citibank NA.
"We don't typically compete, for example, with MBNA or Citibank in the platinum-card market," he explained. "Nor are we really in the impaired credit market either, such as secured cards."
The company feels that the moderate to low income segment is the largest and fastest growing customer segment out there; it is also the most distinct in that the users of credit in this sector tend to revolve their balances versus being transactional users. For example, the "super prime" consumer uses the card to make purchases and then pay off the balance at the end of the month. The moderate income customer tends to carry balances on their card.
"It is also a segment that is not marketed as heavily as other segments such as the super prime' market, Than said. "The moderate income consumers don't get three to five offers per month from the mass market issuers. And while this is a competitive market, it is not as competitive as the super prime' market."
Although the company has a very unique target customer, Than says that is not to be confused with the impaired credit card market.
"We're in the middle segment," he explained. "Not what I would call the super prime' area and definitely not in the impaired credit area. Consumers in this segment value having access to a credit card and they are very sensitive about maintaining their credit."
Its Asset-Backed Business
Metris first broke ground in the asset-backed market in 1995 with a $670 million transaction. Relieving itself of its rookie status, the company has proven to be a steady issuer completing 13 transactions and drawing in roughly $8 billion in proceeds.
"The performance of the Master Trust has been very strong," he said. "We have some of the highest excess spreads in the industry and it has been a very stable performer."
"Because securitization is reliable and cost-effective, it will be an important source of financing our business going forward," Than added.
Metris will continue to diversify its funding using other sources, such as deposits, but securitizations will always play an important role for the company.
In addition, Than feels that the company's portfolio is "very well seasoned" and that its credit quality has been stable for 11 consecutive quarters.
"Part of the reason we have such a seasoned portfolio is that we don't use the teaser rate that many of the issuers use," he said. "For example, offering 3.9% financing to transfer your balances. As a portfolio seasons, the predictability of the portfolio's credit quality improves."
Speaking of the credit card securitization sector as a whole, Than feels that things look good going forward.
"At this point in time, investors are looking to put money to work," he said. "So it's a favorable environment for issuers right now. Our last transaction shows a high level of investor confidence in both the current credit markets and Metris itself."
Some things that make Metris unique are the strong loan-loss reserve position, the conservative expense and revenue recognition policies, and the strong capital position of the company.
In addition, the management team at Metris brings years of experience to the game.
"The top 15 people each have at least 20 years of credit card experience each and come from names likes Bank of America, Household [International] and Citibank," Than explained. "We don't need to be the biggest credit card issuer, but we do want to be the most profitable."