Salomon Brothers and Goldman Sachs priced the high-profile $1.24 billion Providian Pass-Through Amortizing Credit Card Trust (PACCT) 2002-1 distressed credit card securitization on June 11, significantly cheapening the deal and shortening the weighted average lives (WAL) on the lower classes to get investors up to the plate.

Providian wrote down an approximate $2.6 billion portfolio of high-risk credit card accounts to about $1.4 billion in the first quarter, creating the cushion that allowed the largest-ever distressed credit card ABS deal to get done.

The final deal had a weighted average life of 1.81 years all the way down the investment-grade capital structure. On the triple-A class, however, the WAL was lengthened from 0.80 years to 1.81 years. The deal was never intended to be 2a7 eligible, but money market type investors were excluded as a result of the longer WAL at the front end of the curve.

The juicy spreads enticed a handful of ABS CDO players; reportedly, those investors with a history of doing long, detailed credit work for yield participated.

Providian Financial Corp. will remain the interim servicer on the pool, and will transfer its obligation to CardWorks and CompuCredit in six to 12 months.

The transaction was motivated by Providian's restructuring plan, presented to regulators late last year that included dumping its worst-performing high-risk customer base to focus on middle market (600-670 FICO) obligors. While the transaction will result in an approximate $240 million after tax loss for the company, the deal is expected to improve the Providian National Bank's risk-based capital ratios.

The $2.6 billion pool of receivables was originated by since-discontinued TV- and web-based marketing campaigns that focused on obligors in the 200-500 FICO range. In addition, several hundred million dollars worth of receivables in the portfolio backing PACCT were purchased from First Union in 1998.

The net charge-off rate on the pool being securitized is 20% on an annual basis, over 15.3% of the pool is over 30 days delinquent, and 48.8% of the obligors have a FICO score between 200-500. The pool has approximately 1.7 million credit card accounts.

Salomon and Goldman priced the PACCT notes over one month Libor and synthetic Libor as follows (ratings by Moody's Investors Service and Standard & Poor's): 75 basis points over for the triple-A notes, 135 basis points over for the double-A paper, 300 basis points over for the single-A notes, and 550 basis points over for the triple-B paper.

San Francisco-based Providian Financial had a reported net income of $38.9 million in December 2001 versus $651.8 million for December 2000. The firm's return on assets for December 2001 was 0.100 versus 3.600 in December 2000.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.