CompuCredit gets 40% discount for distressed loans

As troubled issuers continue to seek liquidity in unlikely fashions, Providian Financial announced last week that it would sell $2.6 billion of troubled loans, roughly half to rival credit card issuer CompuCredit Corp. and the other half in a novel securitization, scheduled to hit the primary market next week (see structure below).

As per the agreement, Providian will sell $1.4 billion of an asset-backed transaction from a vehicle called Pass-through Amortizing Credit Card Trusts Pass-through Certificates, series 2002-1, backed by a pool of high-risk receivables. The remainder is being sold to CompuCredit, at what is believed to be 60% of par value, analysts noted.

In addition to the liquidity provided to the issuer, the removal of this amount of non-prime loans from its books is viewed as taking some regulatory heat off the troubled lender. Providian is awaiting the closing of the $8.2 billion sale of prime collateral to JPMorgan Chase as well as $565 million of U.K. loans to Barclay's plc.

The ABS transaction, led jointly by Goldman Sachs and Salomon Smith Barney, offers investors both fixed- and floating-rate classes ranging in average life from just under one year out to just over four years tranched down to triple-B-rated notes.

The $516 million of triple-A-rated senior paper, with a 0.8-year average life, is heavily overcollateralized with subordination levels at 81%. Also offered are both fixed- and floating double-A, single-A and triple-B-rated notes. The structure includes $2.6 billion of retained classes, rated double-B and unrated, respectively.

While CompuCredit plans to take over servicing for the portfolio it is acquiring, there is a one-year lag period expected before it can completely transfer servicing rights. Servicer for the ABS transaction will be Cardholder Management Services, a Lewis Ranieri-managed firm which services portfolios for small players and new entrants into the market.

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