The credit card ABS market is one of the most mature markets in the ABS sector. As of 3/31/99, approximately $350 billion of domestic public credit card ABS had been issued and approximately $225 billion remained outstanding. The amount issued over the last several years has remained fairly constant at approximately $40 billion to 50 billion per year. We expect credit card ABS issuance volume to reach $48 billion in 1999.

We believe investors that need liquidity and/or relatively stable performance should have exposure to the triple-A and, to a lesser extent, the single-A rated classes of the credit card ABS market. The spread differential between the triple-A and single-A classes has remained fairly stable.

We believe investors who are willing to accept less liquidity for incremental yield should consider the triple-B rated credit card market. Structural innovations continue to broaden the investor base for the product. Additionally, the spread pick-up versus its related triple-A class is wider than the same pick-up that can be achieved in other fixed income sectors.

Issuers of credit card ABS have a great deal of flexibility when structuring their transactions, which has led to a fairly broad investor base. The largest issuers have consistently demonstrated an ability to adjust their strategies to confront weakness in their portfolio performance. Both of these factors have lead to relatively stable spread performance in the credit card ABS sector.

Structural Development

The most significant structural changes made to credit card ABS have centered on the issuer's desire to make the triple-B class available to a broader group of investors. The triple-B market was the exclusive domain of the traditional bank credit enhancement providers (e.g., the letter of credit providers).

As these "investors" reached exposure limits or found the market less desirable, issuers began to issue certificated CIA. These securities have fairly stringent transfer restrictions and are generally not ERISA eligible. Additionally, the number of holders of CIA or certificated CIA are limited to less than 100 for the entire master trust.

Some issuers have used an owner trust structure whereby a collateral interest is sold to an owner trust to resolve the issue. The owners trust then issues notes that fund the purchase of the collateral interest. These notes are ERISA eligible and can be sold freely in the 144A market.

The next restriction that issuers are trying to overcome is the placement of the Class-C in the 144A market. Several issuers are currently working on structures that will allow them to issue public Class-C notes along with public Class-A and Class-B notes. By issuing notes instead of certificates, ERISA eligibility is more easily achieved.

We view any structural development to broaden the investment base of credit card ABS positively. By broadening the investor base, liquidity in the sector should improve.

Relative Value

We believe the credit card ABS sector is the most stable, liquid sector in the ABS market. The underlying collateral has become an integral part in the way consumers pay for and finance their purchases.

Credit card issuers also have a great deal of flexibility to attract a variety of investors. Their structural ability to issue either fixed or floating rate ABS along the yield curve has allowed them to meet varying investors' needs.

We believe investors that are willing to accept less liquidity for incremental yield should consider the triple-B rated credit card market.

However, as these markets have become less attractive to issuers or to banks that have simply hit exposure limits to the sector, opportunities have opened for the non-traditional buyers of triple-B credit card ABS.

Probably the first non-traditional investors in this market were insurance companies. With the introduction of the owner trust triple-B class, we have seen a broader array of investor types. We expect this trend to continue as more issuers utilize the owner trust to issue class-C and as investors become more comfortable with the credit and return performance of the triple-B card market.

In terms of spread differential between various triple-A and triple-B securities, the spread concession received by investors willing to go down to the triple-B level in credit card ABS trade is much greater than the corporate sectors have illustrated.

We believe investors that need liquidity and/or relatively stable performance should have exposure to the triple-A and, to a lessor extent, the single-A rated classes of the credit card ABS market. The single-A rated market has priced fairly consistently to its triple-A rated counterpart, and the quality curve for 5-year credit card ABS is not as steep as it is for the corporate sectors.

We believe this is due in part to the relatively positive fundamental outlook for credit cards. the change in spread for the triple-A rated corporates is stickier than the change in spreads for triple-A rated ABS since there are less data points for corporates (i.e., there are relatively few triple-A rated corporations). This spread differential between triple-A and single-A credit cards is fairly constant, which should lead to fairly stable performance.

We believe as more investors become comfortable with the credit and return performance of the single-A credit card market, its liquidity should improve.

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