Further evidence of the buyside's fearlessness about Y2K may spur credit-card issuer Metris Co. to issue an asset-backed deal in the fourth quarter, as the St. Louis-based company has recently received several reverse inquiries from investors with money to spend.
Paul Runice, treasurer at Metris, said good market technicals and a need among ABS investors to put money to work before the new year has got Metris mulling an issuance before year-end, though the company is sufficiently funded to forgo pricing a deal in the fourth quarter.
"We're getting some reverse inquiries now, where investors are still in a position to where they're getting money, they're getting insurance premiums, the fund flows are still coming in," Runice said. "So we might do something in the fourth quarter.
"We're not in a position where we have to," Runice added. "We've got the liquidity we need, but I think the supply-demand balance is pretty good. They took September down by $10 billion, almost one-third of the issuance, and October has been a little more busy. People are looking for investments."
Quarterly And Then Some
Driven by a branding strategy, a growth in the moderate income credit-card market, numerous acquisitions resulting from an increasingly consolidating credit card sector, and a planned refunding of some older transactions, Metris will pump up its deal calendar going forward to herald at least twice the amount of deals the company has launched annually in the past.
"We expect to be a little more frequent of an issuer than we were in 1999, given the growth in the company and a refunding of some of the original transactions that were done by the master trust," Runice said. "We're planning on being in the market maybe four or five times in 2000. Over the last two years, we've been in about twice a year."
Due to this frequency, Runice said to expect Metris deals that are smaller, "probably $500 million, so there are more points for investors to look at out there when they're thinking about pricing."
The idea is to get Metris established as a name with investors, using a strategy that combines a focus on growth and an eye to branding through acquisitions.
"Our growth is really driven by organic growth," he said. "We're still focused on the moderate-income market, which we think is still a less competitive sector of the market. So our growth is really driven from that, as well as the fact that we have been fairly active in acquiring underperforming credit card portfolios with the consolidation of the bank card business."
Over the last two years, Metris has acquired card portfolios from KeyBank, Mercantile Bank, Huntington Bancshares, PNC Capital Corp., and General Electric Capital Corp. In a move that effectively ended its brand name card business, GE sold $1.2 billion in Visa and MasterCard receivables to Metris last June. Runice said his company is still hungry for card portfolios that are able to be rehabbed.
"We think there's opportunity there," he said. "That and the organic growth of the moderate income sector are really the two things that are driving the growth of our managed book. That will drive our securitization activity, although we are funding an increasing amount on balance sheet, with deposits or other forms of funding."
Metris buys portfolios that it believes have been undermanaged. The company prices those books for risk, and then applies a little more collections intensity to them than they previously received on the servicing end. The new card debt must go through a gauntlet of credit assessment though, before it ends up in a public Metris deal.
"We'll usually, with an acquired portfolio, bring it on to our balance sheet, or we'll securitize it privately, and once we've taken a read on the results of that portfolio after the conversion, and priced it for risk for a number of months, it's usually only at that point where we'll consider putting it into the Metris master trust," he said.
On matters concerning consolidation, Metris remains disinterested, Runice said, adding that the company will continue to remain on the acquiring end of the trend as an eager buysider.
"There have been a number of players who have made a strategic decision to to exit [the business], but it's worked out fairly well for us," he said.
Metris has completed nine deals for a total of $5.6 billion since entering the market in 1996. The company has used a variety of bankers on its transactions. The most recent lead managers include Salomon Smith Barney, Banc of America Securities LLC and Chase Securities Inc.