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November 03, 2017  

CapOne Seen Securitizing Cabela's Accounts

It looks like Capital One will fold Cabela’s credit-card business into its securitization program, allaying fears among investors that the bank would fund the retailer’s accounts by another means.

After CapOne agreed to purchase Cabela’s card receivables in October 2016, the talk among industry professionals was that the bank most likely would fund that business via deposits — spelling the end for an asset-backed bond program that is highly regarded by investors. But since the deal was finalized last month, bankers privy to CapOne’s thinking have come to believe will result in a substantial increase in the bank’s output of credit-card securities.

CapOne picked up about $6 billion of Cabela’s Club Visa accounts as part of a broader transaction under which Bass Pro Shops acquired the retailer on Sept. 25. The deal boosted CapOne’s overall credit-card portfolio to a whopping $99 billion on Sept. 30. Bass Pro Shops separately offers credit cards through Bank of America.

When it comes to securitization, it’s unclear whether CapOne intends to add the Cabela’s accounts to the collateral pools underpinning its existing trust, or set up a new issuing entity. Either way, CapOne’s annual production of asset-backed securities is expected to increase by $1 billion to $2 billion starting in 2018. Last year, CapOne sold $6.3 billion of card bonds via seven transactions. Its year-to-date total stands at $6 billion, according to Asset-Backed Alert’s ABS Database.

The first CapOne transaction backed by Cabela’s accounts is expected to hit the market early next year. Looking ahead, the Cabela’s deal could boost CapOne’s securitization volume even further, considering the bank acquired the right to write co-branded cards for the next 10 years.

Card bonds backed by Cabela’s accounts have long been prized by investors because of the creditworthiness of the retailer’s customers. The deal with CapOne put an end to the last independent retailer-branded credit-card operation, which Cabela’s ran via a subsidiary called World’s Foremost Bank. As part of its takeover by Bass Pro Shops, Cabela’s sold the bank to Synovus Bank.

As a free-standing business, Cabela’s had been securitizing its credit-card accounts at a rate of about two transactions per year, with a total of $7.7 billion of bonds sold since 2001.

“That trust was very well regarded,” one banker said. “The quality of the borrowers far exceeded that of other typical retail credit-card issuers.”

That could explain why CapOne may have had a change of heart about its funding strategy for the Cabela’s accounts. It also suggests the McLean, Va., bank may be more inclined to integrate those accounts into its existing collateral pools, rather than create a separate vehicle. Indeed, during an Oct. 24 earnings call, CapOne executives said the addition of the Cabela’s receivables reduced 30-day delinquencies within the bank’s card portfolio to 3.94%, from 4.15%.

“I think CapOne recognizes how much investors liked Cabela’s deals,” an investor said. “This isn’t your typical retail card.”

CapOne’s securitization volume has fallen sharply since the credit crisis. From 1995 to 2009, it sold $78.2 billion of credit-card paper, at times issuing up to 20 deals per year.