Recent news from bankrupt retailer Spiegel Inc. did not bode well for holders of the issuer's outstanding ABS, as an agreement reached with Dallas-based Alliance Data Systems sealed the fate of the private label and bank card trusts. Reports surfaced that a buyer could not be found, even with an increased servicing fee that federal regulators hoped would make the portfolios more attractive.

Alliance, which owns ABS issuer World Financial Network National Bank, signed three separate agreements for Alliance to originate, service and manage the credit card accounts for Spiegel's three main distribution channels: Eddie Bauer, Newport News and the Spiegel Catalog. Each of the deals are for 10-years each and make logistics less complicated should the entities be split up during bankruptcy. Reports surfaced last week that rival catalog retailer L.L. Bean was the leading bidder for just the Eddie Bauer unit.

Spiegel announced last Monday that the portfolio sale had failed, and that it would continue collecting incoming payments on the trusts. Bond insurer MBIA, which has $840 million of net par exposure to Spiegel Credit Card Master Note Trust, announced in its 1Q03 earnings release that it had "finalized arrangements with a successor servicer" for the private-label portfolio, although the winning bidder was not revealed. The Office of the Comptroller of the Currency had previously stipulated that Spiegel unit First Consumers National Bank step down as servicer by June 30.

The servicing fee increase, designed to entice potential buyers at the cost of eroding credit enhancement and prevent a NextCard-like scenario, apparently failed, leaving bank regulators have pretty consistently fumbled the ball when taking over ABS-issuing bank entities.

"A lot of potential acquirers looked at the portfolio and even made bids on parts of it, but perceptions have changed and most assume, when a bank stops originating [credit card] receivables, only the bottom of the barrel accounts remain," said one source close to the situation.

On a positive note, Spiegel announced that it had received bankruptcy court approval for a $400 million of debtor-in-possession financing, for which it had to pledge its inventory in order to secure. The senior secured facility was set up by Banc of America Securities, which has banking ties with Spiegel and was a member of its selling group. The CIT Group Inc. and Fleet Retail Finance Inc. were also reported as co-managers on the facility.

Totaling $400 million, the facility can step down to $350 million in the event that either the company terminates it or 120 days lapse after the final order from Spiegel's merchant divisions, whichever occurs first.

"The Court's final approval of our DIP financing is another important step forward as we continue our efforts to restore the financial health of our business," said interim chief executive officer and chief restructuring officer Bill Kosturos, in a prepared release. "This financing facility enables The Spiegel Group to continue to operate smoothly throughout the reorganization process."

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