Investors last week snapped up a new-issue credit card asset-backed securitization from Discover Financial Services, driving an increase in the size of the deal and tighter-than-expected pricing. Discover Card Execution Note Trust Series Class A 2012-1, backed by unsecured revolving credit card receivables on accounts originated by Discover Bank, originally launched at $500 million, and later doubled in size to $1 billion on demand from investors, according to an official with knowledge of the transaction. Market players bemoaning the paucity of credit card ABS deals are clinging to any positives in the sector.
“Supply has been pretty low for the past couple of months, so that could contribute to the demand for the Discover paper,” an analyst said. He added that the tide could be turning for the sector as the differential between the cost of deposits and securitization as sources of funding for credit card originations closing up over last year.
Still, the market saw about $60 billion in credit card maturities last year, versus around $15 billion in new issuance. “At this rate, if we’re looking at a net issuance of $45 billion, in three years the sector could be gone,” the analyst said.
Guidance on the Discover deal was in the area of 25 basis points over interpolated swaps for the deal’s single, 3.03-year weighted average life tranche, rated Aaa/AAA/AAA by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, respectively. It priced at 24 bps over interpolated swaps to yield of .819%.
“I’m not surprised,” Chris Flanagan, head of U.S. mortgage and structured finance research at Bank of America-Merrill Lynch, said of the market reaction to the Discover deal. “There’s just not enough paper in the sector. It’s got very favorable technical dynamics that are very supportive of the credit card market right now.”
Moody’s cited a low average account balance of $2,822 among the deal’s strengths, as it requires a lower minimum payment and makes it easier for borrowers to stay current. The ratings agency also pointed to a relatively low concentration of cardholder accounts from California and Florida (14.4% of the pool versus 20.4% for other issuers), where economic hardships are making it more difficult for residents to stay current on payments. By contrast, Moody’s underscored the fact that the sponsor has the lowest long-term rating (Baa3) of all the big six card ABS sponsors—Discover, American Express, Bank of America, Capital One, JPMorgan Chase and Citibank-branded cards.
Officials at Discover and at joint-leads Bank of America-Merrill Lynch and RBC Capital Markets declined to comment on the transaction.
Discover last tapped the primary market in November with a $400 million transaction, it’s fourth of 2011 (SI, 11/16).
Also in the credit card space, GE Capital’s second credit card deal of the year hit just post-ASF2012. The issuer’s GEMNT 2012-2, a $676 million transaction, saw three-year AAAs come in at 70 basis points over LIBOR, while the As came in at 125 bps over LIBOR. GE Capital priced an $845 million GEMNT 2012-1 only a week before (SI, 1/20).
Elsewhere in ABS, Sallie Mae was seen tapping the student loan sector, marketing a $547 million securitization of private credit student loans, SLMA 2012-A, which priced Thursday. The $379 million A-1 priced at par at 140 bps over one-month LIBOR and the $168 million A-2 priced at a slight discount at 285 bps over interpolated swaps. Moody’s Investors Service and Standard & Poor’s assigned both classes an Aaa/AAA, respectively.
Credit Suisse, Barclays Capital and Goldman Sachs are serving as joint book-running managers on SLMA 2012-A, and declined to comment on the private, 144a transaction.
The student loan originator traded its most recent securitization of $765 million in Federal Family Education Loan Program notes Jan. 11, with pricing on the one-year AAAs hitting at 25 bps over LIBOR, and on the three-year AAAs in the 45-110 bps over LIBOR range.
