Despite being marketed for several weeks, a $1.4 billion credit card transaction from Providian Financial is being held up by the transfer of servicing rights, sources said, and no firm plan for the transfer had been presented to the rating agencies as of press time last week.
Providian will service the portfolio initially, before randomly distributing the rights to Cardholder Management Services, a unit of CardWorks Inc., and CompuCredit Corp., which is purchasing $1.2 billion of the receivables in a related transaction.
Of note, should the company enter into bankruptcy prior to the transfer, the transaction would head into early amortization. Providian is expected to retain servicing rights for up to 18 months.
Until a specific plan is presented to the rating agencies, however, expected ratings will not be assigned. Initially scheduled to price in April and settle last Tuesday, it is questionable whether this deal will be completed this month. But with buyers lined up for all classes of the offering, market participants expect the transactions to eventually be completed.
With an average FICO of 570 and 15.3% of the accounts greater than 30-days delinquent, the 5% servicing fees for this transaction is double the industry standard. The servicers have recommended to Providian that it modify the APRs and fees charged to the cardholders in the pool prior to the deal's settlement. Cardholders who do not accept the changes would in turn become barred from further use of the cards.
With the sale of $8.2 billion of its prime receivables to JPMorgan expected to close later this year and access to other funding sources restricted, Providian's access to brokered deposits is limited by its "ability to offer competitive pricing", theorized Gimme Credit analyst Kathy Shanley in a recent report. Therefore, the increased reliance on the ABS market is evident. Also, the shedding of higher-risk loans is part of a broader restructuring plan by the issuer.