According to the Wall Street Journal, there's a hugely positive indicator that credit markets are really thawing. JP Morgan is completing a wildly successful credit card asset-backed security ("ABS") transaction. They upsized the deal twice: it started at $1 billion on Monday, was quickly increased in size to $1.525 billion, and today was reopened and increased again today to $1.825 billion. That investors are showing strong demand for asset-backed securities again has to be a huge sigh of relief for banks.
The ABS market began to seize up in mid-2007, starting the onset of the credit crunch. The Federal Reserve's Term Asset-Backed Securities Loan Facility ("TALF") was designed to help banks utilize securitization again.
This transaction, along with a few others this month, indicates that the ABS market might not need TALF for much longer. The article mentions that those other non-TALF credit card ABS transactions include another JP Morgan deal earlier in the month of $1.5 billion and a Citigroup deal completed last week of $1.25 billion. These transactions did well because investors are finally becoming more comfortable putting money to work again in the ABS market.
ABS funding has traditionally enabled banks to allow credit to flow to consumers. However, for credit cards consumers, increased credit through the recent success of ABS doesn't seem to be the trend.
I'd like to see the term sheet/prospectus for this deal, or more importantly, their pitchbook. With some credit card issuance trusts breaking record charge-offs (and other metrics), what makes this particular one so attractive?
Most credit card ABS deals, due to the issuance trust structure, are highly overcollateralized. I'd imagine that rating agencies are demanding even greater loss protection these days. So there must be significant padding in these transactions, or at least enough that investors aren't too worried. And don't forget that spreads are much, much wider than they were two years ago.
If you really want to check out the prospectus supplement, here are some urls:
Original transaction:
http://www.sec.gov/Archives/edgar/data/869090/000119312509135537/d424b2.htm
Upsized $300b:
http://www.sec.gov/Archives/edgar/data/869090/000119312509137802/d424b5.htm
Daniel, thank you for posting this article, and specifically, for the links to the prospectus. Do you know what the duration on the other ABS deals are (or where I can find out about them)? Looking at the prospectus, I thought it was worth noting that JPM is paying L+13.83% on their latest C-Class Issue.
Sorry for the double post, but do you have any idea what happened with the last Class C (2009-2) issue on May 12th? I'm assuming it's TALF-related from looking at the prospectus, but I can't even tell if it actually got issued or not?
If by duration you mean bond duration in the technical sense, then I wouldn't know that without a Bloomberg terminal or some similar database containing that kind of info. If you mean duration to just mean maturity, then that's shown in the prosups by the "scheduled principal payment date."
As for that C-note you mentioned, yes – non-AAA tranches have had very ugly spreads for some time. And that was issued back in March.
Looking at the prospectus from that transaction (2009-2), it says:
"On the closing date, the Class A(2009-2) notes (other than any Class A(2009-2) notes retained by, conveyed or transferred to, or acquired by Chase Bank USA, National Association or its affiliates) will be eligible collateral under and as defined in the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility, subject to the matters discussed under “Risk Factors” in this prospectus supplement."
I take that to mean subordinated notes weren't sold under TALF. That means either Chase just retained them, or they sold them as private placements. I'd assume the former, but I have no insider knowledge of what was done with notes. If they were retained by Chase, then they probably just put a spread to LIBOR on them as a coupon that they thought seemed reasonable, so they could sell them at a later time if they felt like doing so.
Thanks for the response.