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February 01, 2019  

Rebound Forecast in Card-Bond Issuance

Industry professionals predict issuance of U.S. credit-card bonds will increase this year, with American Express, Bank of America and Citigroup poised to lead the pack.

A combination of factors including a large volume of maturing issues, rising bank deposit rates and tight spreads is fueling the expectations. Last year’s output of $36.6 billion marked a 23% decrease from the $47.4 billion of card-bond deals that priced in 2017, according to Asset-Backed Alert’s ABS Database.

Fitch forecasts issuance will reach or exceed $50 billion this year. The bullish outlook is based in large measure on the agency’s estimate for the volume of maturing credit-card paper that could be re-funded with new deals: about $50 billion this year, compared to $40 billion in 2018. “That is a sizeable increase, and we expect it to have a big impact on issuance,” Fitch senior director Herman Poon said. “At the end of the day, the banks want to keep their different funding-source options intact by remaining in the market.”

Moody’s is calling for a more modest increase in maturities, to perhaps $41 billion, resulting in “stable to slightly higher” bond issuance in 2019. Moody’s notes that in recent years banks have relied less heavily on the asset-backed bond market to refinance maturing deals.

“The general trend over the last several years is that credit-card issuers have de-prioritized securitization,” Moody’s vice president Pedro Sancholuz-Ruda said. “That has led to a lot of existing bonds maturing and issuance tending to lag behind maturities.”

At the same time, Moody’s is prepared to raise its forecast for card-bond issuance if the deposit rates banks offer rise in the coming year. “We are keeping this caveat: If interest rates change and deposit rates rise, that can change the equation,” Sancholuz-Ruda said. “But we haven’t seen the deposit rates rising for some yet.”

Although it remained the top seller of credit-card securities, Citi saw its 2018 issuance volume fall to $6.8 billion, from $11.1 billion the year before. Number-two American Express sold $6.7 billion of card bonds last year, down from $10.2 billion in 2017. Among the leading issuers, only BofA’s issuance volume increased — to $4 billion, from $3.1 billion.