Barclays Capital analysts took an initial examination of U.S. dollar-denominated credit card ABS backed by non-U.S. dollar receivables.

The bank said that beginning in 2010, U.K. and Canadian credit card lenders have issued roughly $11.5 billion of ABS notes backed by non-U.S. dollar-denominated receivables. 

These credit card ABS orgiriginators include several U.K. banks and a Canadian bank: Gracechurch Card PLC; Turquoise Card Backed Securities PLC; Penarth Master Issuer; Arran Cards Funding PLC; and Canada's Golden Credit Card Trust.

These firms have, according to analysts, tapped into strong U.S. buyer appetite. These investors are looking for high-quality consumer products to diversify away from traditional non-mortgage ABS investments.

Barclays analysts explained that originators usually have the flexibility to issue in different currencies as specified in the relevant offering documents. The above mentioned lenders in particular have been issuing in the U.S. dollar market to widen their investor base.

With the considerable demand from U.S. investors, analysts expect this trend to continue. They believe U.S. dollar-denominated classes of credit card deals backed by non-U.S. receivables allow U.S. buyers to get unsecured consumer exposure and pick up incremental spread. These also allow them to diversify away from the comparatively finite supply from traditional U.S. credit card issuers.

Non-U.S. dollar-denominated credit card ABS are quite similar to U.S. credit card master trusts when it comes to structural features, cash flow mechanics, and collateral performance, they said.

But, there are some slight variations in risk profile given the different legal and regulatory regimes. For instance, in the U.K., credit card holders with deposit accounts held at the servicer could seek to set off credit card debts against those deposits following an insolvency of the bank, but only to the extent that the UK’s Financial Services Compensation Scheme (FSCS) does not first cover the deposits. 

Relative Value

Even with the incremental risk, analysts think that the U.S. dollar-denominated classes of credit card deals backed by non-U.S. dollar receivables are comparatively attractive as they trade at a discount to traditional U.S. credit card ABS of similar average life.

They said that this is a niche sector within consumer ABS that buyers should consider for spread pickup, added supply considering the significantly reduced U.S. credit card ABS issuance, and diversification of their non-mortgage ABS holdings.

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