Credit card ABS

Credit card ABS (CCABS) constitute one of the most liquid and widely accepted asset classes in Europe and most European ABS investors are likely to hold some credit card securitisations. The purpose of this chapter is to discuss the structural features and investment characteristics of CCABS. The focus is on the UK credit card ABS market because the vast majority of European credit card transactions are backed by sterling-denominated collateral. 

EXHIBIT 13.4 European Credit Card ABS Issuers Ranked by Volume (1995 to 2002) ... 

The key performance indicators for analysing credit card portfolios include portfolio yield, monthly payment rate (MPR), delinquencies, charge-offs, and excess spread. For most European credit card ABS, these performance indicators are published on a monthly basis on Bloomberg. The high degree of standardisation in terms of which performance indicators are published and how they are calculated makes the credit card ABS market very transparent. This also allows us to construct meaningful indices which help us track the performance of the whole (or a significant part) of the credit card market. 

Barclays Capital has developed an index for the European CCABS market, called the Barclays European Credit Card Indicators (BECCI). BECCI includes approximately 12 billion equivalent in receivables held in publicly rated ABS credit card transactions. It covers approximately 85% of the whole European credit card ABS market. Transactions are not included if their performance data is not or not yet publicly available. The various performance indicators are calculated on a weighted average based on the publicly rated notes outstanding. 

The CCABS market continues to be a safe haven for European ABS investors. Especially in 2002, when corporate bonds of various sectors showed increased price volatility and the CDO market experienced a significant number of downgrades, credit card ABS transactions continued to show strong and stable performance. In fact, since the market s inception in 1995, no European CCABS have experienced any downgrades. We believe that CCABS are likely to continue to exhibit strong and stable performance and remain one of the core asset classes for European ABS investors. 

Notes issued in synthetic structures are organized by tranche. With the proceeds from the notes it issues to investors, the SPV purchases high-quality (AAA) liquid securities—for example, U.S. Treasuries, bank asset-backed paper such as credit card ABS, and German bonds, such as Pfandbriefe —to serve as collateral. This collateral will generate LIBOR-related interest and principal cash flows that the SPV passes on to the investors together with the swap premium, which creates an additional credit spread on the notes. The cash flows from the collateral may not match the payments due on the issued notes—for example, the bonds used as collateral may pay a flxed rate and the issued notes a floating one. To remedy this, the... 

Since 1991, the stand-alone trust has been replaced with a master trust as the preferred structuring vehicle for credit card ABS. The master trust structure allows an issuer to sell multiple issues from a single trust and from a single, albeit changing, pool of receivables. Each series can draw on the cash flows from the entire pool of securitized assets with income allocated... 

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