As credit card chargeoff rates have risen, so has the market for securities backed by charged-off credit card bills.

This week Chase Manhattan Corp.'s securities unit is hawking $147.5 million in receivables from a debt collector called Commercial Financial Services Inc. The deal is the largest of a growing number offered in the last few months.

Investor interest in these securities, rated "A" by Standard & Poor's, is said to be so strong that the size of the offering was increased. Spread information was not available, but previous deals have sold for 215 basis points above U.S. Treasury notes.

Now that investors are demonstrating they will buy these short-term securities backed by distressed, unsecured consumer loans, analysts expect banks and finance companies to tap the asset-backed market frequently as more loans go bad.

Credit card issuers charged off $17.5 billion of accounts in 1996, according to Duff & Phelps Credit Rating Co., and over half that volume is suitable for securitization, the agency said.

Should the market approach $9 billion in volume, it means charged-off credit card securities would become nearly as big as the market last year for securities backed by government-guaranteed student loans, according to Prudential Securities.

Buyers of these unconventional securities are mainly mainstream insurance companies, said Duff & Phelps analyst Christopher Donnelly, adding, "Maybe it's for the little more adventurous."

The deals begin when a debt collector buys a large block of defaulted credit card bills from a bank for pennies on the dollar. A $1 billion portfolio might fetch $10 million, Mr. Donnelly suggested. Anything the company can then collect over the purchase price is worth its while.

The risk to investors, said Prudential Securities analyst Thomas Zimmerman, depends on the ability of the issuer to recover enough bad loans to support the securities.

The leader in this field is Commercial Financial Services of Tulsa, Okla. The firm got its start buying nonperforming loans from the FDIC and Resolution Trust Corp. It began buying distressed credit card receivables from banks in 1995, and now has $4.4 billion worth on its books.

Commercial Financial buys bad loans from banks at predetermined rates and packages the receivables into securities to finance its collection operation.

Securitization is now an important fund-raising source for the company, which is expected to sell addition charged-off credit card receivables via Chase Manhattan later this year. u

Investors have been getting uneasy with conventional credit card securities after Advanta Corp. reported losses.

Spreads of some mainstream credit card securitizations widened by three or four basis points after Advanta's problems came to light, Mr. Zimmerman said.

But evidently these jitters were temporary: Traders say spreads have tightened to within two basis points.

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