The Street came out with mixed emotions over JPMorgan's acquisition of Providian Financial Corp.'s $8.2 billion portfolio of prime and near-prime credit cards.
From an ABS viewpoint, bondholders in Providian Master Trust enjoyed instantaneous tightening on the news, to the tune of 140-plus basis points, according to IFR Asset-Backed Securities. The 220-area bids for Providian MT prior to the announcement had priced in the prospect of an early amortization, an ABS trader said.
Though the sale gives Providian a much needed liquidity boost, some bank analysts have noted that it leaves Providian with a significantly large, less-than-prime credit card portfolio.
"Without the higher-quality receivables, the net charge-off rate may appear worse," write analysts at CIBC World Markets in their equity research coverage. "By our calculations, Providian will be left with a $24 billion portfolio of low-end prime and sub-prime balances after the sale, which have demonstrated poor credit trends and were largely the driver behind the company's implosion."
Of course, it's assumed Providian will shed more assets as part of its capital-restructuring plan. In fact, according to analysts at Banc of America Securities, Providian is currently in the market with a $3 billion subprime portfolio, which BofA estimates is sporting a 20%-plus loss rate.
A researcher from Keefe, Bruyette & Woods writes, "The sale of assets is consistent with our thesis that Providian would sell its prime base receivables at a gain to strengthen its balance sheet, [and] sell its deep subprime receivables at a loss and stabilize the portfolio."
Providian exited the subprime-lending business late last year, shortly after it announced that it anticipated future losses associated with its risky consumer loans.
Last week Providian announced it had closed a number of securitizations, worth about $2.8 billion combined, to refinance existing transactions. A source familiar with the deals said they were privately placed deals, which can be executed quickly, and without some of the regulatory hurdles required for public market securitizations.
Via Goldman Sachs and Salomon Smith Barney Providian closed a $900 million securitization, though the company drew just $675 million in funding from the transaction, reducing the program size to that amount, the company said in a release. Providian also closed two additional deals, a $1.15 billion and $1 billion via JPMorgan and Deutsche Banc, with Barclays Capital and Credit Suisse First Boston participating. Notably, Providian is using $625 million in proceeds to pay down the private Master Trust Series 1998-1, which went into early amortization last fall as a result of Providian being downgraded.
JPMorgan angle not so sweet
While the purchase of Providian's prime credit card portfolio is clearly a positive development for current Providian Master Trust ABS holders, some view it as a negative for future holders of Chase Credit Card Master Trust paper. Analyst Kathy Shanley calls Providian's platinum accounts "tin in anyone else's portfolio," in the Jan. 17 issue of Gimme Credit, an independent research service on high grade corporate bonds.
Combined with exposures to Enron Corp. and Argentina, the $8.2 acquisition is seen by Shanley as adding more credit concerns to an already full plate. In October, Providian reported losses on its platinum cards were approaching 8%, Shanley also noted. Chargeoffs for the Chase CCMT portfolio are at 5.48%, lagging both MBNA and Capital One, before mixing PVN's numbers.