Weakness In Credit Card Debt Offerings

For the first time since 1993, credit card companies were unable to sell bonds backed by customer payments (see Bloomberg article). Top-rated credit card-backed securities maturing in three years are selling at spreads of 475 basis points over Libor, compared to a spread of only 50 basis points less than a year ago. Given higher unemployment, leading to potentially higher credit card use and an inability to pay, lenders are expecting higher default rates for 2009. American Express is already accessing the Fed commercial facility program, as well as cutting 10 percent of its work force. Bank of America, JPMorgan, and Citigroup all rely on the debt market to fund their credit card portfolios, and could also subsequently be impacted by higher spreads and lower liquidity.