02/11/2011

Maturity Drop Spells Weak Card Issuance

Far fewer credit-card bonds are coming due this year than in 2010, suggesting another anemic year for card securitization.

Only about $60 billion of such securities are slated to mature in 2011, down from $100 billion last year, according to Moody's. Despite the drop-off, the agency is estimating issuance of $15 billion to $25 billion of credit-card securities in the U.S. this year, which would exceed the $7.5 billion sold in 2010, according to Asset-Backed Alert's ABS Database. Still, the middle of the predicted range would amount to less than half of the $47 billion sold in 2009.

Analysts at Moody's noted that most of the increased issuance isn't expected until the second half of the year. At this time last year, Moody's over-estimated 2010 issuance by a wide margin, predicting that about $50 billion of card securities would hit the U.S. market.

Over the past couple of years, banks have been funding much of their card operations through lower-cost deposits, rather than structured finance, and that trend is expected to continue this year. Issuers backed away from the ABS market after the financial crisis scared off investors. On top of that, new Financial Accounting Standards Board rules that took effect in 2010 curtailed many of the accounting advantages of securitization.

Still, major players will likely want to maintain a presence in the card-bond market this year, according to Moody's, if only to sustain the infrastructure and relationships needed to generate new issuance when necessary. “Issuers want to keep the plumbing working,” said Moody's analyst Greg Gemson.

Citigroup, which sat out all of last year despite $11.3 billion of maturing bonds, can once again use deposits to cover all of its $11.1 billion coming due this year. But sources said Citi will nonetheless return to market later this year to flush the pipes with a major offering from its Citibank Credit Card Issuance Trust. However, Citi won't come anywhere close to the $17.2 billion of card securities it issued in 2009.

Bank of America faces the largest volume of maturing card bonds this year, with $14.6 billion coming due. But it is unlikely to turn to the ABS market to refinance much of that total. BofA saw nearly $20 billion of card securities mature in 2010, but went to the asset-backed market with a just single, $900 million offering.

Last year, J.P. Morgan had $35 billion of card bonds slated to mature, but stayed out of the ABS market altogether. This year, it has just $13.3 billion coming due. The bank has held back new issuance since 2009, when it sold $14.2 billion.

Another no-show last year was Capital One, which has $7.4 billion of notes coming due this year, following $9.9 billion of maturities last year. The McLean, Va., lender has relied on deposits since June 2009, when it issued $1.7 billion of card bonds.

American Express, with $5.7 billion of credit-card bonds maturing this year, also has been bulking up on deposits over the past two years to reduce its reliance on ABS. It issued only $1 billion of card bonds last year, down from $2.3 billion in 2009 and $11.7 billion in 2008.

Discover will see $4.3 billion of notes come due this year, about half its 2010 total, when the Dover, Del., card issuer came to market with two offerings totaling $1.4 billion.

GE Capital, which has only $950 million of credit-card paper maturing this year, already sold $686 million of bonds in a Jan. 20 offering. The Fairfield, Conn., lender issued $1.6 billion of credit-card ABS last year, when $4.3 billion of its bonds came due.

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