NEW YORK - The credit card sector could see more single seller commercial paper conduits this year, according to Moody's Investors Service analyst William Black, vice president and senior credit officer, speaking at Moody's U.S. Consumer Credit Outlook 2005. Black said that he expects "at least one, perhaps two, in the credit card sector in 2005." Black said he has spoken with a few credit card ABS issuers who were interested in starting their own single seller CP programs, but declined to name them.
The existing roster of four single seller CP issuers is led by Citibank, N.A. and its $15 billion Dakota program. Discover's Newcastle program is the next largest with $8 billion, while MBNA America Bank's Emerald program has $5.7 billion, and Capital One Financial's NOVA program is set at $5 billion. At this point, any issuers who would tap the single seller market would likely be large, prime credit card issuers, such as the four already involved, because of the complexity and cost of setting up the structures.
"[The single seller programs] allow issuers to attract short-term investors and diversify their funding base," said Black. The programs allow issuers a measure of flexibility because they can get in and out of the paper in a fairly short amount of time. The notes are also extendable, meaning their maturities can lengthen based on certain triggering events built into their structures. The debt is relatively lightly backstopped, with between 15% and 33% external liquidity, as opposed to the 102% typical of multi-seller programs. The issuers are able to get away with such a small liquidity percentage because of the intrinsic liquidity of the collateral.
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