Titled Asset-Backed Securities: A Primer for Credit Card Managers, this report is the first analysis of the asset-backed securities (ABS) market since the recession that focuses on the credit card industry.
Readers will learn about the logical and legal flows of credit card asset-backed securities (ABS), an important financing tool used by many top issuers. Asset-backed securitization enables lenders to originate credit card accounts, season their portfolios, and then sell the receivables to bank-owned trusts that enable investors to buy future revenue streams. Credit card issuers can generate servicing fees and then use the funds to reinvest in new accounts. One top-tier bank has 50 percent of its portfolio securitized, which is a key component of its growth strategy.
“The report presents a case study of the asset-backed securitization of a credit card portfolio of a major global bank to illustrate the level of analytics covered in an ABS prospectus. One important facet that is apparent is the importance of the FICO® Score and the way it is used throughout the credit cycle from origination to credit cycle management and ultimately through securitization,” notes the author of the report. He adds: “Dodd-Frank brought discipline to the ABS process, and issuers have a requirement to effectively manage their portfolios, particularly as they place blocks of accounts into the capital markets.”
Highlights of the research report include:
- Asset-backed securitization volumes by issuing bank since the Great Recession
- Forecasted market projections through 2023
- A view of asset-backed security pricing strategies
- An explanation of how funds disperse based on revenue streams
- A review of the credit rating process
- How credit managers play an important role in the success of ABS
- A case study drawn from a major global bank that illustrates the seven key elements of an ABS prospectus
Asset-Backed Securities: Lending Giants Become Marketing Machines
- And Explode it Did
- Asset-Backed Securities: A Simplified Explanation
- ABS Purchasers Must be Sophisticated Investors
- Putting ABS into Context: Credit Card Receivables
- ABS Offerings are not Cookie Cutter Events
Asset-Based Lending: The Logical and Legal Process Flow
- The Logical Process Flow of a Credit Card Asset-Back Securitization
- The Waterfall: Trusts Define the Trust's Payment Hierarchy
- The Legal Flow of an ABS Deal
- Credit Rating Agencies Act as Objective Third Parties Since the Wall Street Reforms
The Role of Credit Card Managers and Operations Staff
- Seven Important Topics to Look for in a Prospectus
- Balance Ranges, Utilization, and Vintage Illustrate Portfolio Risk and Robustness
- FICO Scores: The Acid Test for ABS Portfolio Quality
Credit Card ABS Market Outlook
- Volume Growth will Continue
- What this Means to the Credit Card Industry
- Related Research
List of Figures
Figure 1: ABS purchases are typically sophisticated investors.
Figure 2: The logical flow of an abs deal begins with booking accounts and returns to re-invest the funds
Figure 3: The payments waterfall prioritizes who gets paid in what order
Figure 4: The legal flow of an ABS offering follows a series of steps before meeting investors in the market
Figure 5: Wall Street reforms made rating agencies more accountable for credit ratings.
Figure 6: The recession severely impacted the volume of asset-backed securitization in the United States
List of Tables
Table 1: Top issuers dominate the credit card asset-based securitization market: number of ABS offerings.
Table 2: Top issuers have placed $226.9 billion into securitized offerings since 2012 (dollar value in millions).
Table 3: ABS deals vary by issuer and by deal.
Table 4: The credit card ABS prospectus covers demographics, risks, and returns.
Table 5: In revolving credit, even small balances are important for determining portfolio value.
Table 6: Account credit lines indicate portfolio condition
Table 7: Account vintages illustrate the portfolio seasoning.
Table 8: Delinquency levels show current portfolio risk.
Table 9: Geographic dispersion may indicate risk or portfolio balancing.
Table 10: Other data, such as co-branded partners, can provide a view of risk.
Table 11: Almost every U.S. credit card issuance relies on the FICO Score to depict risk.
- A.M. Best
- Alliance Data Services
- American Express
- Bank of America
- Barclays Bank of Delaware
- Barclays Capital
- Capital One
- Securities and Exchange Commission
- Sperry Corporation
- Standard & Poor’s
- TD Securities
- US Bank
- Wells Fargo Securities