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Moody's Investors Service last week downgraded the securitized credit card receivables in Target Corp.'s master trust because of "substantial deterioration" in its performance over the past 12 months, likely caused by poor economic conditions. The charge-off rate on outstanding receivables in Target's credit card master trust reached 15.5% in May, a rise of 670 basis points from its 8.8% charge-off rate in May 2008. This pace of deterioration exceeds the credit card industry's average charge-off rate in May for securitized receivables of 10.62%, Moody's said. Though Moody's expects the industry's charge-off rate to peak at about 12% in the second quarter of 2010, the ratings agency forecasts that Target's charge-off rate eventually will reach 16% to 18%, although it did not specify when. Also, the payment rate—the amount of cardholder payments going toward principal balances—within Target's master trust hit an all-time low in May of 10.5%. That compares with previous years when the payment rate averaged about 15.5%, Moody's said. "The trust portfolio, once comprised entirely of private-label accounts, is now predominantly comprised of Target cobranded Visa cards," Moody's said. "These cobranded cards carry comparatively higher credit limits and higher average balances, which may translate to a relatively lower payment rate as well as a higher severity of loss on charged-off balances."
