Issuance of asset-backed securities dropped in the first half of 1997 as major credit card issuers withdrew from the market.
About $72 billion of asset-backed securities were sold to investors through June 30, 3% less than a year earlier, according to Securities Data Co.
The decline was due mainly to a drop in securities backed by credit card receivables. Issuance in that asset class dropped to $15.6 billion this year, compared with $27.3 billion a year ago.
At the same time, issuance of securities backed by home equity loans jumped to $27.1 billion, from $15.6 billion.
Analysts said the drop in credit card securities may be due to tighter standards for issuing new cards.
"Companies that are growing less don't have to issue as many securities," said Lehman Brothers analyst Beth Starr.
Meanwhile, investors are getting more choosy about whom they buy credit card-related securities from. Although most offerings are still graded triple-A by the ratings agencies, yields have grown among securities for such companies as Advanta Corp. because investors have grown increasingly wary of rising chargeoff rates.
Some banks with elevated loss rates in their credit card portfolios, such as Banc One Corp. and First Union Corp., have not issued any new securities this year.
Securitization is the primary but not only way most major credit card issuers fund their operations. Without securitization, issuers may be tapping the asset-backed commercial paper market for funding.
The more reliable issuers, such as MBNA Corp. and Citicorp, are also forgoing the market as they look for new investors overseas.
For example, this week MBNA closed a deal in which it sold $508 million worth of French franc receivables to European investors. Earlier this year the credit card specialist closed a deal denominated in Dutch guilders. These securitizations are not counted by most on Wall Street because they are not available to American investors.
"We're just as active issuers as ever," said MBNA vice chairman Vernon H.C. Wright. "We're just seeking diversification of funding."
It certainly is a cheaper form of funding. When the francs are converted back to dollars, MBNA will be able to price the securities at a mere 5 basis points above the London interbank offered rate. A similar deal in the United States would be priced at 20 points over Libor, said Lisa Anderson, asset-backed analyst at Deutsche Morgan Grenfell.
