After months of planning and discussions with rating agencies, The Metris Companies is finally set to bring its first senior/subordinated transaction of the year - and its first such structure in three years. The offering comes on the heels of Fitch Ratings upgrading the corporate unsecured rating of Metris, as well as $2 billion of ABS issued by the Metris Master Trust and positive third quarter earnings.

Sources close to the situation report that the marketing effort for Metris 2004-2 gets underway early this week, with a road show in New York, in the hopes that an official deal announcement is made mid-to-late-week. Pricing is tentatively slated for late this week. Banc of America Securities, Barclays Capital and Deutsche Bank Securities are jointly leading the transaction, with Goldman Sachs as co-manager.

Metris Master Trust 2004-2, totaling roughly $300 million, will have a two-year floating-rate structure, featuring four classes - including the first double-A rated ABS bonds issued by Metris. Enhancement levels were set in the mid-50% area for triple-A rated notes, mid-40% area for double-A rated notes, mid-30% area for single-A rated notes and mid-20% area for the triple-B notes. Metris had been holding out hope that it could get triple-B enhancement levels down to below 20%, according to a rating agency source.

The enhancement levels for MMT 2004-2 were described as being "sort of consistent" with the most recent transaction from the Providian Financial Gateway Master Trust. With a double-B minus unsecured rating - four to five notches higher than Metris - Providian placed fixed-rate triple-As at 18 basis points over swaps, or 3.38%, and its double-As to yield 40 basis points over swaps, or 3.60%.

Also, unrated World Financial Network recently sold a two-year private label credit card ABS offering featuring a double-A rated tranche. WFN's 1.98-year triple-A bonds priced at 10 basis points over one-month Libor, with the 1.98-year double-As pricing at 25 basis points over Libor.

Metris' 2004-2 deal is expected to price much wider, as there are still lingering concerns over the credit card issuer's long-term financial well being.

"This is a big ship that is slowly turning around," one investor said of Metris. "And the ship has the added weight of restricted portfolio growth on its shoulders. There could be a negative denominator effect as accounts move through the portfolio," the investor added.

On Oct. 7, Fitch upgraded Metris's unsecured rating to B-' from CCC', in part prompting the debt tracker to affirm last week $1.38 billion of senior credit card ABS, upgrade $470 million of mezzanine and subordinate bonds and $150 million of retained D classes. In all, the action affected just over $2 billion of MMT bonds. Moody's Investors Service and Standard & Poor's have yet to take action on Metris's unsecured debt or ABS.

Last week Metris reported net income of $61.8 million for the third quarter 2004, up from a $75 million loss in the same period last year. In its most recent master trust performance, Metris reported that defaults fell $10 million sequentially, and that excluding default-related attrition, its portfolio grew by $20 million from August. Additionally, the default rate declined by 100 basis points, to 16.29%. The performance led to the freeing up of $60 million in cash that had been trapped in the trust to protect ABS holders, and the company anticipates an additional $35 million to be released this quarter.

Many on the buyside view now as a good time to get in on Metris, particularly its subordinate bonds. Since a November 2002 management shake-up which saw Scott Fjellman take over as treasurer, performance has steadily improved.

"I like the current team. They know their business and they work hard," another investor said. "My only concern is longevity of the company, I think they are cleaning up to sell, which is not the worst possible thing."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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