First USA Credit Card Master Trust’s $500 million class A floating-rate asset-backed certificates, series 1997-8, are expected to be rated ‘AAA’ by Fitch. The corresponding $45.2 million class B certificates are expected to be rated ‘A+’. The 10-year securities represent the trust’s third offering in the past month and thirty-fourth since inception.
Fitch’s ratings are based on the strength of the Visa and MasterCard collateral pool, available credit enhancement, excellent servicing capabilities of First USA Bank, and the solid legal and cash flow structures framing the transaction.
Credit enhancement supporting class A is derived from the subordination of the class B and collateral invested amount (CIA) certificates, equal to 17% of the total initial invested amount. Class B investors are protected from losses by the 9.5% CIA certificates. The $57.2 million CIA certificates are interests in the trust subordinate in payment rights to class A and class B.
Several economic and credit stress scenarios were devised by Fitch to determine appropriate credit enhancement levels. The scenarios simultaneously stress yield, chargeoff and monthly payment rate steady state assumptions. In addition, to address the interest rate risk associated with uncapped floating- rate coupons, the coupon is stressed to worst case London Interbank Offered Rate (LIBOR) levels without a corresponding adjustment to yield.
Under the available enhancement, class A withstands a 35% decrease in yield, a 40% decline in payment rates and chargeoffs increasing to over 30% and still makes full and timely payments of investor principal and interest. Class B sustains a 25% decrease in yield, a 30% decline in payment rates and chargeoffs increasing to more than 20% without suffering a principal or interest loss.
Class A and class B investors will receive monthly interest payments of 0.15% and 0.36% over one-month LIBOR throughout the revolving and accumulation periods and on the scheduled final payment date, provided an early payout event does not occur. Early amortization of the bonds may result from a deterioration in asset quality, transferor insolvency or servicer default. Fitch expects to affirm its outstanding ratings assigned to existing master trust series indicating that series 1997-8 will not result in a ratings reduction or withdrawal.Details