The Metris Companies continued its turnaround last week, pricing its first ever double-B rated transaction from the Metris Master Trust. The offering, however, was unique for several reasons and marks what Metris hopes will become programmatic double-B rated issuance going forward.

The $52.8 million series 2004-2 D tranche offering, led by Banc of America Securities, Barclays Capital and Deutsche Bank Securities, is actually the securitization of retained interests in its most recent credit card ABS, which priced last October (see ASR 10/25/04).

The single-tranche D class, with a 1.73-year average life, priced at 325 basis points over one-month Libor, a 190 basis point spread pick-up to the 2004-2 triple-B rated C class.

"We had seen what other companies had done in the past [regarding selling double-B ABS] and we had a larger-than-usual retained interest and a debt for tax treatment opinion from our legal team," said Metris Treasurer Scott Fjellman. "We hope to be a programmatic double-B issuer going forward. Future double-B rated offerings, however, are expected to be included in the capital structure upon new issue.

Due to the trust's greater than usual subordination in the series 2004-2 deal - 20.5%, or $154.7 million - Metris received a legal opinion approval to achieve debt for tax status and carve 7% of the retained interest - or $52.8 million - for this offering. In order to carve out the 7%, Metris needed a majority approval from the triple-B ABS holders, which is reportedly achieved by a margin far greater than the minimum 50.1%.

Yield-seeking investors, many of whom already with Metris triple-B ABS and even triple-C unsecured exposure, reportedly requested that Metris carve the double-B rated D bonds from its previous transaction, effectively allowing Metris to borrow against its retained interest. Moody's placed Metris's Caa2' unsecured rating on review for a possible upgrade on Jan. 13.

The debt-for-tax treatment primarily allows ERISA eligibility, sources said, as well as allowing non-U.S. based investors to participate. Sources close to the transaction reported investor distribution was on par with what one would expect for a triple-B rated Metris offering. In fact, many MMT triple-B ABS holders who approved the amendment ended up participating in the D tranche offering, sources said.

The 2004-2 D class was rated BB+' by Fitch Ratings and Ba2' by Moody's Investors Service. Standard & Poor's, which structures for a fixed allocation of finance charges in the event of an early amortization, did not rate the offering. The double-B class is enhanced by the remaining 13.5% credit enhancement, as well as a reserve account funded for 30 months of interest payments while the expected final maturity is Oct. 22, 2006 - 22 months from settlement.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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