A regular issuer of bonds back by credit card receivables is taking the unusual step of replacing the receivables with cash. Metris Companies, a regular issuer of credit card asset-backeds, is defeasing its first sale from 2000, marking the fifth time it has done so. Rating agency analysts note the phenomenon is relatively rare and Metris appears to be the only issuer to defease its outstanding structured finance transactions in recent memory.
In the procedure, Metris sets aside an escrow cash account that can be put into high-quality, eligible investments. These replace the credit card receivables and generally are seen as an improvement on the credit front, which is why Moody's Investors Service is upgrading the defeased classes from the 2000 Metris deal.
Scott Fjellman, senior v.p. and treasurer of Metris in Minnetonka, Minn., said the company began defeasing deals last year out of necessity when Metris' financial condition weakened. Since then, it has defeased transactions, as the right to do so is embedded in the master trust's structure. "It will continue to be an option for us as the company's portfolio continues to improve," he said.
Jesse Mann, director at Fitch Ratings, said the process is rare and he doesn't expect other issuers to follow suit. "I don't think it's a trend. It works well for Metris, but it's not as efficient for the company because cash is sitting an account. They like that investors are comfortable with it and will probably do it for some time but I don't see other issuers doing it."