Fitch Refines U.S. Credit Card ABS Criteria

The constant eye on consumer confidence, coupled with recent regulatory and industry developments, has prompted Fitch Ratings to enhance its rating methodology for U.S. credit card asset-backed securities (ABS). While the key analytical considerations of Fitch’s criteria remain in place, refinements include new USD LIBOR scenarios, and compensation for basis risk between the prime rate used to price most variable credit card lending and USD LIBOR. ‘Fitch has also placed more focus on purchase rate and servicing fee levels in light of regulatory developments,’ said Managing Director Claire Mezzanotte.

Fitch has also validated the rating stresses used in its credit card ABS model following a study of more than 38,000 observations per performance variable from 123 trusts between 1989-2006. While Fitch’s valuations remain consistent historically, Director Cynthia Ullrich said that, ‘macroeconomic conditions have the potential to be more severe than those observed in the course of this analysis, so Fitch will conduct similar studies periodically going forward.’

Additionally, the new criteria piece includes a discussion about the Fitch seller/servicer rating process and how it is being implemented for credit card ABS. Although Fitch has always evaluated the seller/servicer associated with credit card ABS, Managing Director Stephanie Petosa explained that ‘the process has been formalized and will augment Fitch’s credit card collateral analysis and cash flow modeling when determining credit enhancement.’