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

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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.

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.

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