Standard & Poor's has placed 12 credit-card-backed securities issues on the CreditWatch list with positive implications, noting similar securities' strong past performance.
The move affects nearly $220 million of securities issued by units of Advanta Corp.; Chemical Banking Corp.; Dean Witter, Discover & Co.; and Sears, Roebuck and Co.
Standard & Poor's said that, in the past, one percentage point of enhancement was provided for transactions like these with long revolving periods. But the agency added it was not clear that credit enhancement is needed to protect investors against potential declines in collateral credit quality.
And the rating agency noted that since it began rating card-backed issues in 1987, no downgradings have been imposed due to collateral performance.
Rated transactions normally have a base-rate trigger, which is designed to cause the early return of principal to investors if a decline in collateral performance causes excess spread to fall below zero.
Although this protects investors from credit risk, it introduces prepayment risk, which the ratings do not address, the agency said.
Each of the 12 securities in question had initial revolving periods extending beyond five years.