Fitch: U.S. Credit Card ABS Structures Withstand Prolonged Stress

NEW YORK--(BUSINESS WIRE)-- U.S. credit card asset-backed securities (ABS) have demonstrated a resiliency to prolonged credit quality stresses and averted downgrades throughout the economic downturn, which according to a new report from Fitch Ratings is further testament to the strength and flexibility of the structures.

The report, 'U.S. Credit Card ABS Ratings and Structures Withstand Persistent Pressures', details performance of the credit card ABS collateral and ratings over the first half of 2010.

Fitch's findings remain consistent with previous observations that credit card ABS ratings would have been largely stable among four of the five largest U.S. credit card ABS master trusts even without additional credit safeguards incorporated through the credit crisis and recession.

The five largest U.S. credit card ABS master trusts are sponsored by Bank of America (BofA), Capital One, JP Morgan Chase, Citibank, and Discover.

Additionally, in the limited incidences of potential downgrades, the magnitude would not have exceeded one category for senior classes and two for subordinate classes. Of the five trusts included in the review, only one (BofA) would have seen its senior classes downgraded, to 'AA' from 'AAA'.

Other potential specific actions included the following:

--BofA's master trust would have experienced rating downgrades of one-to-two categories at all levels;

--Citibank's C notes would have been downgraded to 'BB' in December 2009 had credit enhancement not been increased. Additionally, Fitch would have put the class A and class B notes on Rating Watch Negative in June 2010;

--Without the discount option, only BofA and Citibank would have triggered spread account trapping. Based on the available excess spread and the trapping schedule, BofA and Citibank would have trapped approximately 1.5% and 2%, respectively;

--Absent discount options being implemented, none of the trusts would have triggered early amortization by this time. The three-month average excess spread would have remained above 0% for all trusts;

--All other trusts would have maintained their original ratings, although some would have experienced potential downward Rating Outlook revisions.

This comes even as credit card chargeoffs still hover at or near record levels. "Chargeoffs would have to surpass 30% to 45% before any senior tranche defaulted given current credit enhancement levels," said Managing Director Michael Dean.

Since 2009, in an effort to stem credit deterioration, issuers have undertaken various measures to provide additional support to existing transactions, such as: discounting receivables, increasing available credit enhancement, re-pricing existing credit card accounts, converting fixed rate interest rates to variable rates and replacing riskier cardholder from trusts higher quality cardholders.

This special report is an extension of Fitch's Dec. 15, 2009 report, 'U.S. Credit Card ABS through the Crisis a Look Back at What Could Have Been...'. The earlier report also analyzed the impact of the credit deterioration caused by the recent recession on credit card ABS ratings and covered data spanning from January through November 2009.

'U.S. Credit Card ABS Ratings and Structures Withstand Persistent Pressures' is available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at 'www.fitchratings.com'

Related Research: U.S. Credit Card ABS Ratings and Structures Withstand Persistent Pressures

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548649

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CONTACT:

Fitch Ratings
Primary Analyst
Michael Dean, +1-212-908-0556
Managing Director
One State Street Plaza
New York, NY, 10004
or
Secondary Analyst
Paritosh Merchant, +1-212-908-0321
Associate Director
or
Media Relations
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sandro.scenga@fitchratings.com

KEYWORDS:   United States  North America  New York

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