Synchrony Bank spooked investors this summer when it said it expected loan losses to rise over the next year as more consumers struggle to pay off their credit card balances.
Asset-backed investors appear to have recovered from the fright.
On Wednesday the private-label credit card company priced an upsized $767.1 million offering of notes backed by credit card receivables from its Synchrony Credit Card Master Note Trust.
The $700 million tranche of class A notes pay 158 baiss points over Libor and the $49.9 million tranche of class B notes pay 191 basis points over Libor, according to a regulatory filing. Both tranches priced near par.
Provisional credit ratings on the notes were in line with deals completed before Synchrony’s warning about deteriorating credit quality in June. The class A notes and class B notes carry similar credit enhancement as the prior 2016 transactions – 27% and 20%, respectively.
In a presale reports, Moody’s Investors Service noted the trust’s recent loan performance is maintaining a lower charge-off rate (6.4%) that in 2014, while 30-plus day delinquencies have been lowered to 2.8% from 3.2% in 2015.
The transaction originally was slated for only $500 million in Class A notes issuance and $47.9 million in Class B. Two additional tranches of notes, $41.1 million in Class C notes and $61.64 million in Class D notes, were not included in the public offering.
Synchrony, the former GE Capital Retail Bank, has had an aggregate credit card portfolio of about $46.7 billion, and has sold private label card receivables of about $13.6 billion tied to 18.4 million customer accounts. The average credit limit is $3,838, with a weighted average age of 144 months. Moody’s noted that 97.2% of all the accounts are current.
Moody’s noted the low average account balance of loans in the trust – just $759 as of July 31, lower than bank-sponsored card securitization trusts.
One drawback for Synchrony is that it comes up short in credit quality compared to bank sponsors of card ABS trusts, and that Synchrony could be in for difficulty in renewing retail partner partnerships due to its separation last November from GE. Synchrony has a high concentration of card issuances through a small number of major retail clients including Wal-Mart, Sam’s Club, Lowe’s and JCPenney.
More than 23% of the portfolio is comprised of consumers with subprime FICO scores before 660. “This concentration of subprime collateral is larger than the subprime concentration of all of the Big Six group of card issuers,” noted Moody’s.
Lead underwriters on the transaction were Citigroup, RBC Capital Markets and Societe Generale.