Continental Finance Company is preparing to sponsor a $210 million credit card securitization deal, secured by a pool of credit card accounts extended to clients with non-prime credit scores and so-called thin credit files.
The transaction, Continental Finance Credit Card ABS Master Trust, Series 2022-A, is the company’s sixth term asset-backed securities (ABS) deal, and the fifth from the master trust. A portfolio of revolving general-purpose credit card accounts will collateralize the deal, called the CFCCMT, Series 2022-A, according to Kroll Bond Rating Agency.
The Bank of Missouri and Celtic Bank Corporation originated the accounts, which operate under the Mastercard brand. More than one million accounts are in the transaction, which have an average balance of $648, and an interest rate of 27.9%.
On a weighted average (WA) basis, the collateral is aged 19 months, and has a non-zero WA Vantage Score of 600. As of June 30, credit card accounts in the CFCC Master Trust have a non-zero WA Vantage Score of 600, which is actually lower than the Vantage Score of 602 among accounts at the Continental Finance company level. KBRA also noted that the accounts have an annual income of $52,372, on a WA basis.
KBRA noted some mixed credit benefits to the notes, based on Continental Credit’s internal credit scoring. The company has used proprietary credit scoring since 2009, and implemented a new model in 2016, its M6. That credit-scoring method used actual defaults and delinquencies experienced in its managed credit card portfolio. The managed portfolio has performed well, but with data going back only to 2016, the data series is limited.
Account holders in the master trust show other signs of non-prime credit. Outstanding balances have grown 81% over the last twelve months, according to KBRA. Balances in the trust have disproportionately WA high balances, $648, in relation to their available credit lines, $947.
The transaction will include a three-year revolving period where no principal payments will be made on the notes before the Amortization Date, unless an early amortization event occurs.
The trust will issue four classes of notes, according to KBRA, which will benefit from initial credit enhancement levels of 44.5% on the $129.5 million, class A notes to 10.0% on the class D notes.
As for ratings, KBRA expects to assign ‘AA-‘ on the class A; an ‘A-‘ rating on the $30 million, class C notes; ‘BBB-‘ on the $30.9 class C notes and ‘BB’ on the class D notes.
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Notes have junior note subordination as initial hard credit enhancement, a non-declining reserve account, yield supplement overcollateralization and excess spread.
Outstanding balances have grown 81% over the last twelve months, with WA high balances of $648, in relation to their WA available credit lines of $947.
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Regardless of whether the deal issues the $1.2 billion base amount or is upsized to $2.0 billion, the collateral is non-prime and has an original term of 71 months.
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