The Handbook of Financial Instruments

Chapter 18 Credit Card ABS

John N. McElravey, CFA

Director, Structured Debt Research Group Banc One Capital Markets, Inc.

Credit card asset backed securities (ABS) have been issued in the public debt market since 1987. Over the years, they have become the largest and most liquid sector in the ABS market. Average annual new issuance of credit card ABS since 1995 has been about $46 billion, with a peak amount of $58.2 billion in 2001. Because of its liquidity, transparency, and relatively high credit quality issuers, credit card ABS has become something of a safe haven in times of trouble for ABS investors. Indeed, investors making their first foray into ABS generally dip their toes into credit cards before diving in to the many other asset types available.

The size of the credit card ABS sector corresponds with the growth in the credit card market overall as consumers have come to rely on credit cards as a convenient method of payment for an expanding universe of goods and services, and as a means of accessing credit. In this chapter, we summarize the key structural features of credit card securitizations and provide an overview of the credit card ABS market.

SECURITIZATION OF CREDIT CARD RECEIVABLES

The earliest credit card securitizations in the late 1980s were executed as a means of diversifying the funding sources for banks active in the credit card market. In the early 1990s, the banking industry faced the imposition of stricter capital standards by regulators. Securitization ...