Providian Financial Corp. continues to test new angles and asset classes, planning a credit card deal from their brand new Gateway Master Trust within a year or so, and perhaps a larger owner trust deal from the credit collateral as well.
But always, when testing products, Providian draws a careful toe along the water's edge, said Mimi Mengis, head of funding at Providian, and Gwinneth Berexa, head of securitization.
"Our overall strategy has been unchanged over the years with respect to how we securitize new asset classes," said Mengis. "We like to securitize them privately first, either in a conduit or in term private transactions."
There are two reasons for this, she explained. Providian likes the opportunity to work out any reporting issues, so that the team has a chance to see how new assets look on a securitized basis.
"[And also], when we have a new asset class we feel strongly that we have a competitive advantage in that market," said Mengis. "Therefore, we like to do private transactions to avoid disseminating proprietary market and product information to a broad audience."
An example of this strategy, explained Berexa, is the Gateway Master Trust, which was established in August. As opposed to the Providian Master Trust, which has been issuing deals backed by Providian's core prime credit card assets since 1993, the Gateway Trust will issue deals backed by Providian's "credit building" portfolio, consisting of credit cards issued to the underserved market.
"Since 1991, we've been serving this market, initially offering only secured cards to customers. And that's been growing," said Mengis. "We intentionally set up a separate master trust for the securitization of those types of credit cards to avoid having a mix of different asset types in one master trust. This, in turn, makes it easier for ABS investors to understand the underlying asset performance trends."
The first Gateway deal, a $1 billion variable-fund series, was issued to conduits in August, following the trust's inception.
"Sometime in the future," said Berexa, "we expect we'll do public transactions [out of the Gateway Master Trust]."
Along these lines, Providian priced its debut home-equity term deal in April of this year. The $500 million transaction was preceded by just one private home-equity deal.
"This is not unusual behavior on our part," said Berexa. "We often times will do one private transaction, season it, and then go to the public markets with something like the home-equity."
According to Berexa, the first public Gateway deal could reach $400 million, and possibly hit the market by the end of next year or in 2001.
However, Berexa and Mengis stress that Providian is in a unique place, with alternative funding sources that allow the company flexibility in timing and placement. "We will continue using securitization as a source of funding," said Mengis. "But we'll always evaluate it closely to make sure it makes economic sense for us."
Deal Activity
Most recently, Providian issued a $606 million credit card-backed deal from the Providian Master Trust, which priced significantly tighter than initial talk, according to Berexa.
"We were extremely pleased with that," she said. "It was well subscribed, actually oversubscribed. It had wonderful momentum. We upsized the transaction."
Providian typically does between three and four deals each year, whether it be public term deals, private term deals, or commercial paper transactions. Berexa speculates that in 2000 the market will see a couple public card deals from Providian, as well as a home-equity deal.
"In the private term transactions, we'll probably be back a couple of times as well," said Mengis.
In terms of public credit cards deals, Providian plans to stay within the $750 million transaction size range typical of credit card deals. However, 2000 may sprout an owner trust deal, which would allow larger deal sizes.
"We have been watching what other credit card issuers have done," said Berexa. "And we're also monitoring some newer owner trust structures that are either being implemented or are in a more research and development phase at different institutions, and we will ultimately be heading in that direction."
A Seasoned Portfolio
Though Providian has been relatively quiet in the public asset-backed market of late, pricing only seven public term deals since 1997, the company is no stranger to the game.
Providian launched its first private credit card securitization in 1989, and since then has executed a variety of securitizations, ranging from the conduit facilities, to a spread account securitization, to its certificates of beneficial interest program (COBIs).
Providian has been running its COBI program since 1993, which is a variable-funding program akin to a single-seller type conduit program, Berexa explained. "We can use it to finance the tails of our term deals as they accumulate or amortize," she said.
Providian's managed assets total approximately $18 billion, a little over $8 billion of that is securitized. "The Providian master trust exhibits very stable performance, including healthy, robust excess spread and stable loss rates," said Mengis. "It's a well seasoned portfolio."
