Card Issuers Hold Back Amid Maturity Surge
More credit-card bonds will mature in 2010 than in any prior year, but that doesn't mean issuers will be rushing to re-fund those obligations with new securities.
According to Moody's, $100 billion of card bonds come due this year, up from $81 billion in 2009. In the past, that would have pointed to a corresponding jump in issuance as lenders sought to roll the underlying accounts into new deals. But not this year.
Moody's estimates that only $50 billion of fresh credit-card securitizations will hit the market in 2010. That would register as an increase of less than 10% from last year's U.S. total of $45.6 billion, according to Asset-Backed Alert's ABS Database.
Many of the factors limiting growth have long been on the minds of market players. First and foremost is the Jan. 1 implementation of the Financial Accounting Standards Board's FAS 166 and 167 guidelines. Those rules effectively ended off-balance-sheet treatment for securitized credit-card accounts, thus reducing the appeal of asset-backed bonds as a funding source. Many issuers have been exploring possible alternatives.
Still-shaky economic conditions and steps by issuers to weed out weak borrowers have also cut into the volume of card debt outstanding, reducing the need for issuers to re-fund maturing securitizations.
Some issuers plan to stay out of the market entirely. Continuing a stance it maintained throughout 2009, for instance, Capital One doesn't expect to issue heavily this year even as $9.9 billion of its asset-backed bonds come due. "We would likely plan to replace the majority of the . . . maturities with lower-cost deposits," a CapOne official said.
Indeed, CapOne has been building up its deposit base for more than a year with an eye toward reducing its reliance on securitization. That's a tactic many lenders have employed, often in response to swollen securitization costs when the credit crisis was at its worst.
While costs have since come down, that hasn't been enough to reignite CapOne's interest in the market. On top of that, reduced card originations have caused the company's financing needs to contract. Overall, the operation expects its outstanding consumer-loan balance - which includes credit cards, auto loans and mortgages - to shrink by about $7 billion this year to $96 billion.
On the other side of the coin is Citigroup, which plans to continue churning out deals after placing $16.4 billion of credit-card securities in 2009. Even with the new FASB rules in place, securitization still appeals to the bank because it can issue triple-A-rated card bonds at interest rates about two percentage points lower than on its single-A-rated corporate debt. "We don't want to dismantle the securitization operation," one Citi official said.
Like other banks, however, Citi plans to draw some funding from unsecured issues and deposits. It has $11.3 billion of card bonds maturing this year.
J.P. Morgan faces more maturities than any other issuer, at $35.1 billion according to Moody's. Expectations are that the bank will seek to roll over some of those obligations while maintaining its current strategy of funding its accounts through a mix of securitization, deposits and unsecured debt.
American Express, meanwhile, is among institutions that have been increasing deposits. The company says it has enough cash on hand to fund the accounts behind all $9.9 billion of its maturing asset-backed bonds this year, but plans to tap securitization, deposits and unsecured debt as market conditions dictate.
The story is the same for Discover, with $8 billion of 2010 maturities, and GE Money, with $4.3 billion. Discover was behind the market's most recent credit-card deal, with a $750 million issue that priced on Jan. 27 (see Initial Pricings on Page 13).
Bank of America is a wildcard. While the bank has $19.7 billion of credit-card bonds maturing in 2010, it hasn't issued senior obligations since 2008 - floating just $650 million of junior securities last year.
In the process, BofA let $17.6 billion of card bonds mature in 2009 without issuing replacements. However, average credit scores among the bank's borrowers rose last year, removing one impediment that kept it out of the market.
HSBC could go either way as well. It hasn't issued card bonds since 2007, but could seek to roll over some of the $1.9 billion of deals it has maturing this year. On the other hand, it let $1 billion of asset-backed bond run off in 2009 - leading some market players to conclude that it is out of the issuance business.