Magazine article American Banker

Banks Using Private Market to Dump Bad Card Loans

Magazine article American Banker

Banks Using Private Market to Dump Bad Card Loans

Article excerpt

Banks are starting to use the private placement market to unload bad credit card loans.

Analysts at Duff & Phelps Credit Rating Co. say they are rating one private securitization of credit card loans that have been charged off, and have been approached to grade four more.

The receivables in these securitizations are over four years past due, and investors - banking on the prospect that at least a few of the loans can be collected - can buy them for pennies on the dollar. The $50 million securitization that is up for a rating is backed up by $1.2 billion in credit card receivables.

This latest new wrinkle in securitization comes when banks are wrestling with rising consumer delinquencies. Banks are turning to the private market because it offers the flexibility needed to structure offerings for such bad debt.

"You can do much more sophisticated deals in the private market than the public," said Rebecca Devine, assistant vice president at Duff & Phelps. "Generally, you're dealing with a small group of institutional investors, and the Securities and Exchange Commission doesn't require as much information as in a public offering."

Increased bank activity is helping drive the private asset-backed securitization market to unprecedented heights.

Duff & Phelps reported last week that volume in the private placement market has reached $6 billion through Sept. 30, nearly double 1995's total of $3.3 billion.

The 10-year-old private placement securitization market has traditionally been dominated by insurance companies seeking high returns on what are often high-risk investments. …

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