A Westport, Conn.-based credit card issuer, which targets college undergraduate and graduate students, is marketing its inaugural securitization, with the hopes of launching this week. Specialty monoline credit card issuer Clout Financial teamed up with the more familiar M&I Bank to bring Clout Financial Credit Card Trust series 2004-1, a $110 million Ambac-wrapped fixed-rate offering via Societe General, in the Rule 144A markets last week.
The offering also represents the first term ABS lead mandate for Soc Gen this year the last from Soc Gen being a joint lead role on a corporate aircraft ABS by GE Capital Corp.
Details of the pending offering, including average life and price guidance, had not been finalized as of last week, sources said, with more information expected in the coming days.
Aside from the guaranty support, the deal is structured with a $17 million subordinate B class providing 11% enhancement and a $1.9 million spread account adding an additional 1.5% of support. The servicing fee for this transaction is set at 5%.
Clout's strategy is to solely target the collegiate market, primarily via telemarketing channels. Clout acquires the accounts from TeleServices Direct, which is owned by Clout Financial's majority owner, according to marketing documentation.
The documentation is also quick to note that Clout's Internet branding in no way indicates that its accounts are originated via the Web. The Clout.com Web site "is designed to direct customers to view personal credit card account information and account review, and also introduces the cardholder to special promotions and other financial services," the issuer points out to investors.
Milwaukee-based M&I acts as both the originator and primary servicer for Clout-issued credit cards. M&I is currently providing a $150 million credit card receivable funding commitment to Clout. In addition, backup servicer Metavante is a subsidiary of M&I parent holding company Marshall & Ilsley Corp.
Clout is responsible for the marketing and sourcing of potential credit card account holders as well as providing risk management of the accounts on behalf of M&I. M&I, in turn, provides oversight of account underwriting and customer service.
M&I, a chartered Federal savings bank, is known more to auto ABS investors, as it has completed three auto loan securitizations since 2001. It has yet to offer a term auto ABS in 2004. Moody's Investors Service rates M&I Bank's unsecured debt at Aa3' and Standard & Poor's rates it at A+' both on watch for a downgrade. Fitch Ratings is not on this transaction.
The Clout portfolio, which consists of 338,587 accounts totaling $142 million, averages 20,000 new accounts per month. Chargeoffs are in the 6% to 8% range, the company reports.
Due to the limited credit experience and moderate to low incomes of the borrowers, credit limits are set accordingly low, with more than 71% of Clout cardholders limited to a $1,000 balance. As a result, more than 72% of the cardholders have sub-$1,000 balances. Nearly 60% of cardholders carry no balance whatsoever.
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