MBNA Europe Bank plans to support both its U.K. credit card master trusts, CARDS I and II.
MBNA intends to support the deals via an issuance of subordinate notes that will add 20.4% of (pro-rata amortizing) credit enhancement to the outstanding series.
The firm is also set to employ a 5%t discount option until July 2010 on selling new receivables into the trust, which will artificially increase reported excess spread.
Charge-offs in the two CARDS trusts had been increasing for the past six months, reaching an unprecedented 16.75% last October and pushing excess spread levels down to very low levels, well below cash trapping triggers.
As a result, all notes from the trusts were either downgraded or placed on rating watch negative by all three rating agencies.
Fitch Ratings and Standard & Poor’s have since confirmed/upgraded the notes as a result of the support.
MBNA's announcement of its plans is positive for bondholders of the CARDS deals. However, the loss of capital relief from any future issuance, combined with the significant increase in credit enhancement for all rating classes, signal there is limited incentive for the originator to try to tap the U.K. securitization market in the future.
“While the scope for any placed issuance in the U.K. was limited anyhow, given current credit concerns and unattractive pricing levels, the lack of action could have had negative echoes among the U.S. investor base, which is much larger and much more important strategically for the bank’s funding strategy,” Barclays Capital analysts said. “Hence, we believe the current action was meant to reassure that particular investor base, but will nonetheless benefit existing bondholders of the U.K. trust deals in the process, while also keeping the bank’s options open if it ever decided to use the U.K. trust for funding purposes.”
