RBC, Comenity planning $1.4B in card-trust issuance

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Royal Bank of Canada and private-label credit-card issuer World Financial Network are planning new series of notes totaling more than $1.4 billion through their respective card master trust vehicles, according to rating agency presale reports.

The $1 billion RBC transaction, Golden Credit Card Trust 2017-4, is a cross-currency transaction that will include a senior tranche with preliminary AAA ratings by Fitch Ratings and S&P Global Ratings, as well as two subordinate tranches that will be retained by RBC for risk retention purposes.

The bonds are backed from Visa and Master Card credit-card payment receivables from consumer and small-business accounts originated in Canada by RBC.

The size of all three tranches is to be determined. The senior notes, denominated in U.S. dollars, will pay interest at a floating rate and the Canadian-dollar subordinate notes at a fixed coupon. All of the bonds have seven-year maturities.

The senior notes benefit from 6.50% credit enhancement provided by subordination and a reserve account that is consistent with past RBC securitizations dating back to 2012. Credit enhancement is also provided by a reserve account that may be funded if the three-month average excess spread falls to or below 4%.

The quality of collateral is expected to be strong; Fitch noted that the trust’s charge-offs and 60+ day delinquencies have remained stable over the past two years and its monthly payment rate has remained consistent since inception.

There are currently 12 Golden series outstanding with a receivables balance of CA$11.4 billion (approximately US$900 million) as of June 30th. The receivables are geographically diverse; accounts in Ontario, Alberta, British Columbia, and Quebec represent just over 84% of the trust’s outstanding receivables.

The one-year average net charge-off rate for all outstanding Golden series is 2.32% as of July, compared to its peak rate (4.22%) in 2010. Sixty-plus day delinquencies over this period remained stable at an average of 1.11%.

The $394.74 million World Financial Network Credit Card Master Note Trust 2017-B is backed by U.S. card payments from consumers issued retail and other affinity cards by Comenity Bank (formerly World Financial Network Bank) through partner merchant agreements.

The capital stack includes a $300 million senior Class A fixed-rate notes series with preliminary AAA ratings from S&P and Fitch. The notes have 24% credit support through subordination of the junior notes in the series: a $22.7 million Class M series of notes rated at AA, and a Class B tranche totaling $10.9 million with an early A+ rating from both agencies.

The accounts in the new pool have an average receivables balance of $476, an average credit limit of $1,693 and an average utilization rate of 5.9%. The average seasoning is 72 months.

The accounts are a blend of cards issued through about 70 different retailers, with a concentration of soft-good clothing retailers (62.7% of the receivables pool) and department stores (19.58%.

With the latest 2017-B issuance, the World Financial trust is adding its 11th outstanding term-series in its master note trust, with principal receivables totaling $6.75 billion as of June, according to presale reports.

The trust’s 28.1% utilization rate of managed cards in its portfolio is among the highest of peer card issuers, according to S&P, mostly due to Comenity’s niche offerings through retailers like L Brands Inc., Ascena Retail Group and Bon Ton Retail Group that have lower credit limits than credit accounts originated for bigger-ticket item retailers, according to S&P.

Since 2015, the levels of losses and delinquencies have trended up for Comenity. Net losses have grown from 5.15% in 2015 to 7.57% for the six months ending in June of this year. S&P assigned a base-case loss assumption of 8.5% for the new trust issuance.

The World Financial transaction is expected to close next week. Wells Fargo, BNP Paribas, RBC, and Scotia Capital are underwriting the transaction.

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