As it had anticipated in January, The Spiegel Group's First Consumers National Bank credit-card trusts moved into early amortization last week, following three consecutive months of negative excess spread.

Though it had long been considered a possibility, it was nevertheless a little surprising that Spiegel's private label deals moved into early amortization practically in tandem with the FCNB deals, as the company had indicated that it was interested in keeping that part of its business in motion. According to some analysts, it is hard to imagine Spiegel as an ongoing concern without the liquidity afforded it through its store-brand securitizations. Ultimately, MBIA exercised its prerogative to call the payout event on the final private-label deal (the 2001-A deal).

The future is certainly bleak for the specialty-clothing retailer, which owns retail outlets such as Eddie Bauer and Newport News. Since the store-card trust is no longer revolving, the company's financial banking arm, First Consumers, is no longer funding customer purchases. As such, last week Spiegel announced that its store cards are no longer active. Additionally, Spiegel announced that without additional liquidity, it might be forced to seek bankruptcy protection, something that is looking more certain without access to the ABS market.

The viability of First Consumers National Bank was first brought to light by an enforcement action ordered by the Office of the Comptroller of the Currency early in 2002. As one of the provisions, Spiegel was to liquidate or sell its bankcard portfolio and close down the subsidiary. Last month, the OCC ordered Spiegel to stop accepting new charges on its bankcard portfolio on or before the end of March.

It was nearly a year ago that MBIA and Spiegel began wrestling with the issue of early amortization with regards to the private-label trust, when MBIA felt that a credit-based trigger had been hit (see ASR 4/29/02). This led Spiegel to seek a restraining order on MBIA and trustee Bank of New York, preventing the payout. The parties settled outside of court, and the trust was kept revolving, provided Spiegel satisfy a set of amended covenants, several of which Spiegel had failed to meet, according to the company's 2001 10-K (filed in January 2003).

This is the third ABS transaction to trigger an early payout this year. In January, the Conseco Finance private-label trust was triggered by its December 2002 bankruptcy filing (see ASR 01/20/03) and Mitsubishi Motor Credit's wholesale dealer floor-plan transaction in February, due to a declining payment rate (see ASR 02/03/03).

Copyright 2003 Thomson Media Inc. All Rights Reserved.

(http://www.thomsonmedia.com)

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