© 2024 Arizent. All rights reserved.

Synchrony prices first $1B issuance from co-branded card trust

Synchrony Bank this week found plenty of interest for a debut offering of bonds backed by co-branded, private-label credit card receivables, which was upsized to $1 billion.

The Synchrony Card Issuance Trust (SYNIT) SynchronySeries 2018-1 tranche of three-year notes, which carry preliminary triple-A ratings from S&P and Fitch Ratings, was originally sized at $500 million, according to presale reports published this week. It priced on Wednesday at 37 basis points over swaps, according to S&P Global Ratings.

The new trust pools about $5.7 billion of receivables primarily from the Mastercard-branded general-purpose credit cards issued through the issuer’s private-label retail card client base. The cards allow consumers to purchase goods and services outside of the co-branded retail stores through which the cards are issued.

Until now Synchrony has only securitized private-label card accounts for use exclusively for retail-store accounts, through its $10.4 billion Synchrony Credit Card Master Note Trust (SYNCT). These offerings are often upsized, based on market demand.

ASR_mastercard
A Mastercard Inc. credit card is arranged for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Sept. 18, 2018. Visa and Mastercard agreed to pay as much as $6.2 billion to end a long-running price-fixing case brought by merchants over card fees, the largest-ever class action settlement of an antitrust case. Photographer: Daniel Acker/Bloomberg
Daniel Acker/Bloomberg

S&P lauded the above-average performance of the collateral for SYNIT, which has shown “higher payment rates, lower loss rates, and marginally lower yields” compared with peer issuers of private-label ABS transactions.

The SYNIT 2018-1 series, for example, has a monthly payment rate of 20.45%, compared with the S&P private-label credit quality index average of 18.63%.

For the new SynchronySeries, the trust has pooled mostly rewards-based, general-purpose Mastercard credit cards issued through Sam’s Club (the largest concentration at 24.5% of the receivables pool), The Gap, TJX, J.C. Penney, PayPal, British Petroleum (BP) and Dick’s Sporting Goods.

The pool includes private-label cards issued through Lowe's without a linked Mastercard account; the Lowe’s accounts made up 22.8% of the pool.

The SYNIT senior notes have credit enhancement of 26%, one percentage point less than the 27% for Synchrony’s most recent private-label master-trust issue in March.

S&P has an 8.5% base-case loss scenario for the new SYNIT series, similar to the expected loss level for the outstanding SYNCT series notes. However, S&P noted that the agency will apply a lower haircut to the SYNIT’s estimated payment rate than given to the private-label trust issues. That’s due to the higher risk that if a store closes, consumers may be apt to quit making payments on cards that can’t be used elsewhere – unlike general purpose cards included in the SYNIT series.

“[W]e think pure private-label retail credit cards will likely have limited utility should the originator or related retail partners become insolvent,” the report stated.

The transaction also includes nominally sized Class B, C and D notes (initially proposed at $5 million each), which will be retained by Synchrony.

Synchrony’s $53 billion managed portfolio of private-label and credit-card accounts will support further issuance from the SynchronySeries notes, as most credit-card ABS vehicles operate; however, the SYNCT platform is a de-linked master trust, allowing for issuance of new senior notes without requiring new subordinate note classes so long as the new notes are provided sufficient credit enhancement.

For reprint and licensing requests for this article, click here.
Payment cards
MORE FROM ASSET SECURITIZATION REPORT