Magazine article American Banker

Chargeoff Securities Attracting Investors

Magazine article American Banker

Chargeoff Securities Attracting Investors

Article excerpt

As credit card chargeoff rates have risen, so has the market for securities backed by charged-off credit card bills.

This week Chase Manhattan Corp.'s securities unit is hawking $147.5 million in receivables from a debt collector called Commercial Financial Services Inc. The deal is the largest of a growing number offered in the last few months.

Investor interest in these securities, rated "A" by Standard & Poor's, is said to be so strong that the size of the offering was increased. Spread information was not available, but previous deals have sold for 215 basis points above U.S. Treasury notes.

Now that investors are demonstrating they will buy these short-term securities backed by distressed, unsecured consumer loans, analysts expect banks and finance companies to tap the asset-backed market frequently as more loans go bad.

Credit card issuers charged off $17.5 billion of accounts in 1996, according to Duff & Phelps Credit Rating Co., and over half that volume is suitable for securitization, the agency said.

Should the market approach $9 billion in volume, it means charged-off credit card securities would become nearly as big as the market last year for securities backed by government-guaranteed student loans, according to Prudential Securities.

Buyers of these unconventional securities are mainly mainstream insurance companies, said Duff & Phelps analyst Christopher Donnelly, adding, "Maybe it's for the little more adventurous. …

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