Is there such a thing as credit card backed securities?

[her209]

You know, a security created from a collection of credit card holders where the credit is extended from a pool of investors?

 

[Wreckem]

There is such a thing as credit card back securities.

CC companies routinely sold them based on future repayments of the debt. The market has dried up, more or less. Thats why the Gov let AMEX become more or less a full bank and take part in the first bailout.

 

[Greenman]

I'm astounded at how mush trash was sold under the securities heading. What's even more astounding is that no one is going to jail over it.

 

[AccruedExpenditure]

Originally posted by: Greenman
I'm astounded at how mush trash was sold under the securities heading. What's even more astounding is that no one is going to jail over it.

They're valid financial instruments. If you held most of these securities to maturity you would come out whole.

 

[LegendKiller]

Originally posted by: AccruedExpenditure

Originally posted by: Greenman
I'm astounded at how mush trash was sold under the securities heading. What's even more astounding is that no one is going to jail over it.

They're valid financial instruments. If you held most of these securities to maturity you would come out whole.

AFAIK, there has *never* been a AAA, AA, or A default on a CC bond from any major CC issuer. Currently the trusts are facing problems, such as interest rate cash trapping (hold money in reserve accounts), but none of them are even remotely close to facing defaults (loss of principal or no interest payments).

CC bonds have been in existence for more than 20 years in different forms. Right now, the master execution trust is the most common form of credit card bonds. It allows companies to issue any class of bonds independent of what needs to be issued to support them. Thus, you can issue a AAA bond if you issued AA or A bonds months ago. It allows a huge amount of flexibility.

The current market for CC bonds has dried up, spreads are 200+ over LIBOR. For the prior decade almost all CC bonds traded AT LIBOR or, in the case of shorter maturity CC bonds, under LIBOR. For the best programs the bonds traded at or close to Treasuries because they were seen as near riskless.

The likelihood of a AAA default is very remote. It would occur when defaults are in the 20% area while excess spread were in the 1-2% area with principal payment rates in the single digits.

naturally somebody will say that there are CDOs that got a AAA. Fine, sure. However, CC bonds have been getting those ratings for years while CDOs were f'd from the beginning and only a recent development in ABS bonds.

If you want to look at the performance of CC structures, Capital One and every other major CC ABS issuer have to do filings according to RegulationAB. Most have the data on websites. Capital One's is pretty easy to get to from the Investor page, it is called COMET.