In the wake of its long-awaited earnings restatement last week, The Metris Companies seems to have found a strategy to navigate the maturing ABS obligations that have worried analysts and investors throughout last year. By announcing the second defeasement of an outstanding ABS obligation - this time the $500 million series 1999-1 ABS that matures in June - more feel secure now that Metris will emerge from its liquidity crunch unscathed. Metris also lifted a measure of uncertainty via the completed restatement.

"We are pleased to have put this restatement behind us," said Metris Treasurer Scott Fjellman. "Metris will continue to use a number of different strategies for repaying maturing ABS term transactions going forward. We are also encouraged by the continued improvement in the MMT performance results."

In its earnings restatement, Metris announced that it had earned $26 million less than previously reported through 3Q03, as well as a 95% loss reserve reduction (to $42.2 million) and 12 accounting changes that would impact retained interest valuations going forward. The relatively low restated equity decline, as well as the admission that Metris had found no accounting fraud, pleased equity analysts.

Next up for Metris are commitments coming due later this year, as series 2001-3 and 2001-4 - totaling roughly $1.3 billion - mature Aug. 20 and Sept. 20, respectively. "I would expect Metris to do the same [defeasement] with the bonds due later this year," one banker not involved in the most recent transaction speculated.

Metris' Fjellman would not confirm any plans for future defeasements, stressing his previous comment on using multiple strategies for funding.

Unconfirmed reports had Banc of America Securities and Deutsche Bank Securities jointly setting up the defeasance, which gives Metris the cash to pay ABS holders on schedule, while the banks assume the volatility risk of the performance of the collateral. Any potential future defeasements are speculation at this point, but numerous underwriters have expressed interest in involvement in future transactions, sources added.

The first defeasance was set up last November to pay the series 2001-1 transaction, which paid down early this year.

Underwriters involved in previous Metris securitizations include Barclays Capital, Credit Suisse First Boston, Deutsche Bank Securities, JPMorgan Securities, Merrill Lynch and Wachovia Securities.

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