As part of a larger trend, MBNA Europe is building an international counterpart to its de-linked issuance program, importing the structure from the U.S. to the shores of Europe. The bank recently established a European-based vehicle.

While MBNA has issued euro-denominated de-linked notes in the past, these have been issued from its U.S. trust and backed by U.S. credit cards. The new vehicle will not only be based in Europe, but will fund credit cards originated and used in Europe.

"In Europe we have seen a number of U.S. platforms but these have not been European-based structures," said one source familiar with the situation. "MBNA Europe has basically taken a familiar structure and incorporated it under European legislation."

According to market research, both Citibank and MBNA have issued de-linked notes in the European market via a U.S.-based structure since 2001. JPMorgan estimated total issuance for all euro- and sterling-denominated U.S. de-linked credit card ABS has exceeded the 6.8 billion (US$8.11 billion) mark, and at least 4.3 billion (US$5.12 billion) of that paper has been issued via MBNA's U.S. de-linked program.

MBNA's new platform functions virtually the same way as its U.S. counterpart. The feature is being amended into the bank's existing trust (U.K. CARDS) established in the U.K. As of March this year, MBNA's CARDS trust had grown to GBP4.1 billion (US$7.26 billion) from GBP846 million (US$1.49 billion) in 2001. CARDs is understood to be the second largest credit card trust in the U.K. The new de-linked issuance vehicle will allow the structure to issue notes tailored to investor demands.

The CARDS trust program is structured vertically, whereby issuance of the class A, triple-A rated notes are supported by the class B and C subordinated classes. "The B and C classes are limited to a much smaller amount in this case, typically around the 25 million to 30 million mark. [Factoring in] investing limits of 10%, and it means that investors can only look at 3 million portions of the subordinated tranches - it's a very small amount," said one market source. "From the A class investors' point of view, they don't care about the B and C classes

as long as there is enough credit enhancement to back the notes. You can issue as much C class notes as you want, but you can't issue the B class until you've issued enough under the C class, and you can't issue the A class until there is sufficient subordination between the B and C classes."

The de-linked structure allows for individual tiers to be issued. For example, the issuer will be able to take advantage of tighter spreads for triple-As without having to simultaneously structure the sub classes. Also, MBNA will be able to issue large sub pieces. This provides investors with broader and easier access to large notes resembling corporate bonds, which will be available for indexes. These notes benefit from greater liquidity than the smaller sub pieces typically issued, said analysts at J.P. Morgan. And because the new structure follows MTN program-type structuring, the documentation is standardized, which will improve execution time.

Setting up the structure required some maneuvering, as the regulatory and jurisdictional landscape differs significantly from the U.S. Now that the vehicle is on its way, it's likely to be replicated by other large European card issuers.

"Establishing this option in Europe recognizes a need for issuers to be quick on their feet," said a source following credit card developments. "The acceptance signals that the European investor is looking for greater diversification and greater liquidity to European-

based issuance."

According to JPMorgan, European credit card ABS represented 3% of overall market issuance in 2003, compared with the 14% stake it had in U.S. ABS issuance. Investor appetite for variety is increasing, as seen in the tightening of credit card spreads.

"We are targeting investors from other parts of the world as well," said a source at MBNA. "While the structure may be issuing subordinated classes in Europe, it's meant to appeal to a global investor base."

Though European issuance still has a ways to go before it reaches equal footing with the U.S. market, this development is a step toward programmatic issuance, which is needed to establish the credit card sector as one of the main European markets going forward.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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