NEW YORK - (Business Wire) Fitch Ratings has placed four classes of notes from the HSBC Credit Card Master Note Trust (USA) I on Rating Watch as follows: --Series 2007-1 class A notes 'AAA' on Rating Watch Negative;
--Series 2007-1 class B notes 'A' on Rating Watch Negative;
--Series 2007-2 class A notes 'AAA' on Rating Watch Negative;
--Series 2007-2 class B notes 'A' on Rating Watch Negative.
The rating actions are a result of a significant increase in both delinquencies and charge-offs in the trust, along with slowing monthly payment rates (MPR) throughout 2009. In particular, there was a rapid increase in charge-offs that began during the beginning of the year and which remained elevated. On a gross basis, charge-offs have risen above the 10% mark for several recent months, compared to 6-7% the same time in 2008. The trust experienced increased volatility during the latest September reporting period, when gross chargeoffs registered more than a 400 bps increase from the prior month, rising to 14.91%. Much of the increase is likely due to the skip a pay feature offered in February. Skip a pay is offered to cardholders twice per year.
The percentage of accounts that are 60 or more days delinquent has also risen dramatically, trending upwards beginning in the second quarter of 2008. These elevated delinquencies indicate that higher chargeoffs will persist for the remainder of 2009 and into early 2010.
MPR, a measure of how quickly consumers are paying their debt, was 7.92% for performance through September month end. The payment rate has slowed slightly compared to an average of 8% that the trust had been experiencing last year. Fitch believes that the continued increase in delinquencies may result in further deterioration of the payment rate in the trust.
Gross yield experienced a slight uptick in 2009 due to an increase in the discount option to 6% from 3% on Jan. 1, 2009. The discount option recharacterizes collections of a portion of principal receivables as finance charge collections, effectively increasing yield and boosting excess spread for the trust. Gross yield has averaged 22.1% for 2009, compared to 18.04% for 2008.
Fitch's analysis includes a comparison of observed performance trends over the past few months to Fitch's base case expectations for each outstanding rating category.
As part of its on-going surveillance efforts, Fitch will continue to monitor the performance of these trusts. Fitch notes these series are in the accumulation phase becoming increasingly backed by cash rather than credit card receivables which partially mitigates the performance deterioration.
Fitch is in the process of gathering additional information and expects to complete its review within the next 90 days.
The following applicable criteria reports are available on Fitch's web site at 'www.fitchratings.com': 'US Credit Card ABS Rating Criteria',' dated March 10, 2008 and 'Global Structured Finance Rating Criteria', dated Sept. 30, 2009.'
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings, New York
Herman Poon, 212-908-0847
Cynthia Ullrich, 212-908-0609
or
Sandro Scenga, 212-908-0278
Email: sandro.scenga@fitchratings.com
