A Lesson in Student Finances

  Clout Financial Credit Card Master Note Trust, owned by a subsidiary of Marshall & Ilsley Corp., last month joined the relatively small group selling securities backed by receivables of college student card programs. The proceeds will be used to fund growth in the Clout card program, an M&I spokesperson says. It is the first securitization from the newly formed master trust.
  Moody's Investors Service issued its highest rating, Aaa, for the $110 million Class A Fixed Rate Asset Notes. The trust is backed by $123.8 million in Visa and MasterCard receivables.
  M&I Bank FSB, a wholly owned subsidiary of Milwaukee-based M&I, is the originator, owner and servicer of the receivables. Those receivables represent about 93% of the Clout/M&I portfolio.
  Although the Clout cards have been marketed since 1999, most of the receivables growth occurred over the past two years, Moody's says. Total receivables increased from $38.5 million in 2001 to $123.8 million at the end of March.
  The Clout.com-branded Visa and MasterCard cards are offered to students under a marketing and origination agreement among Clout, M&I Bank and M&I Marshall & Ilsley Bank. Clout markets cards on a pre-selected basis to incoming, enrolled undergraduate and graduate college and university students.
  Student cardholders typically have little or no credit history, making it difficult for issuers to score them for creditworthiness. But such scores are only "one of the components that go into an analysis of credit risk," says Rajat Bhu, assistant vice president of Moody's Structured Finance Group.
  Guarantees
  In addition, college students' "future income capacity is definitely going to be higher" than a low score might suggest," Bhu says.
  The risk also is offset by a policy from Ambac Assurance Corp., which guarantees the timely payment of interest and principal balance of the Class A notes, Moody's says. Other protections include subordination, deposits into the spread account, and excess spread capture rates.
  Moody's noted that the average initial credit limits on the Clout cards are under $1,000, with a current average limit of $1,667 and an average principal balance of $550. Net losses for the portfolio total about 8% of receivables.
  As with earlier offerings from student card issuers, the Clout Financial series was privately placed, Bhu says.
  "This is a very small niche market," he says. "There are big players who have small portfolios in these segments, but it's not one that too many big names are focused on."