Moody's Investors Service placed all outstanding bonds issued from the Washington Mutual Master Note Trust and the Washington Mutual Master Trust (WMMNT, PGMT, and PMNT), except for those bonds scheduled to mature in the next three months, on review for downgrade because of the continued collateral performance deterioration.
Although Moody's had recently affirmed the ratings on all outstanding notes from the trusts on March 17, during that time, the firm stated that collateral performance was expected to deteriorate. In the March 17 release, the rating agency said that it had increased the expected charge-offs on WaMu's credit card trusts to 10% to 12% from 9% to 11%.
Ever since then, charge-offs for the WMMNT trust have risen to 12.4% from 10.9%. WMMNT's charge-offs are the highest of the bank card master trusts, which is not surprising considering the high concentration of accounts with FICO scores less than 660, a Barclays Capital report noted.
Fully 48% of the trust (in terms of dollar amount) has a FICO score less than 660, compared with 17% to 30% for the other bank card master trusts. Moody's said the comparatively high concentration of accounts in CA and FLA is troublesome as well. These have suffered greatly because of the downturn in the housing market.
Moody's also noted that WMMNT's excess spread levels are low versus the other bank card trusts. Given the risk levels seen in the portfolio, one might expect WMMNT to have higher portfolio yield and excess spread levels due to risk-based pricing, Barclays analysts said. But, yield has been moving downward over the last two years and excess spread is below the industry average.
WMMNT credit enhancement totals 27% for class A, 22% for class M, 16.5% for class B, and 8.5% for class C. All of the classes of notes are being supported by a reserve account that starts to trap collections when three-month excess spread drops below 4.0% (latest print 5.4%), according to Barclays.
Even not considering the reserve account, or the early amortization effect when excess spread dips to less than zero, Barclays analysts think the triple-A and double-A notes are able to withstand a 244% and 212% charge-off rise, respectively, from current levels before being impaired.
Barclays said that this analysis is static, since it does not take into consideration payment rates as well as early amortization events, and analysts think that it probably understates the ability of the structure to absorb losses at the triple-A level. As such, analysts expect the triple-A classes to ultimately be affirmed and think the possibility of class M note downgrades is low.
The rating agency stated that the review process usually takes 90 days, after which period the ratings will be affirmed or downgraded. Moody's analysts are now gathering information from Washington Mutual to determine where charge-offs are heading. However, they said that charge-off levels above their expected range will not really result in downgrades.
It is notable that the rating agency said that although all classes of notes, which include 'Aaa', were part of the review, subordinates are at the most risk for downgrade. The rating agency analysts suggested that it's best to put everything on review and to sort things out after analysts have gathered addtional data from the issuer.
As a result, Barclays analysts expect some sympathetic widening in weaker credit quality card ABS deals, although they are still relying on the structural protection and the ability of top tier bank card issuers to have enough levels of collateral performance. Analysts reiterate their suggestion that credit card ABS buyers should stay in triple-A notes from CHAIT and AMXCA
