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As subprime MBS falters, cards move on up
Asset Securitization Report--SourceMedia (May 14, 2007)

Donna Mitchell

The gush of issuance from the subprime MBS sector has slowed significantly since the overall ABS market kicked off in January and it is beginning to drag down overall issuance numbers, too. No doubt, this is sobering news for the ABS industry.

As ASR pointed out recently, however, it doesn't necessarily mean that investors will behave recklessly in an effort to pile up on whatever paper becomes available. Another silver lining: Other asset classes, credit cards in particular, get a chance to shine. The HEL sector, which encompasses subprime MBS, is running behind 2006's issuance by about 32%. Overall ABS issuance is down 20.8%, according to research from Credit Suisse, Thomson Financial, MCM Corporate Watch.

Credit card ABS issuance, on the other hand, clocked a heated 49% year-over-year increase in issuance by the end of April, say UBS analysts. The investment bank offered a caveat with that statistic, noting that issuance in 2006 was biased toward the middle of the year. But so what? When mortgage and revolving credit statistics are given closer examination, it seems clear that American consumers will continue to rely heavily on credit cards to finance their lifestyles. For the past few years, growth in credit card business was somewhat suppressed, because increasing home price appreciation rates encouraged borrowers to use home-equity loans and other types of mortgage debt to pay for purchases. Now that the spigot on the subprime mortgage market has been tightened, they are dusting off their credit cards and putting them to use. Not only is total consumer debt on the rise, at a 6.7% annualized rate in March, but the percentage of outstanding revolving debt rose to a preliminary 9.2% in March, according to the Federal Reserve.

"The percentage of revolving debt has grown over the last three quarters of 2006, and continues to grow in 2007," UBS analysts said.

Might this shift result in credit cards accounting for a larger portion of overall ABS issuance by the end of the year? Maybe. At the very least, UBS is calling for credit card ABS issuance in 2007 to increase by 5% to 10% over last year.

Ever since Sallie Mae Corp. agreed to a leveraged buyout by Bank of America, JPMorgan Chase and two private equity firms, its ABS issuance -and that of the SLABS sector overall - has dropped off. That restrained term securitization issuance pattern should remain for some time, because word has it that the student loan provider has a $30 billion warehouse facility at its disposal.

As for how all of this impacts recent market activity, the credit card sector priced two series from the Washington Mutual Master Note Trust, totaling $900 million. Barclays Capital acted as lead manager for those transactions. Last Tuesday, the self-named Banc of America Credit Card Trust, a $250 million transaction, priced its single-tranche, single-A rated deal at nine basis points over one-month Libor. Clearly, investors were more appreciative of BACCT paper than GMAC-RFC's RAMP 2007-RS2 - also managed by Banc of America - whose notes of similar duration priced at 28 basis points over despite triple-A ratings.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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