UK credit card ABS prices

NEW YORK: Sole arranger Lloyds Bank Corporate Markets and joint lead managers Bank of America Merrill Lynch and Barclays priced the US$750m tranche of the Penarth Master Issuer's UK credit-card ABS notes today.

According to Moody's, the assets comprise receivables arising under designated MasterCard, Visa and American Express revolving credit-card accounts that Bank of Scotland and Lloyds TSB Bank have originated in the UK under Halifax, Bank of Scotland and Lloyds brands.

Lloyds is a lead manager on all the offered notes while Bank of America and Barclays were joint leads on the USD tranche only.

The US$750m 1.94-year A1 tranche was talked at one-month Libor plus 70bp area and tightened 5bp at pricing to 65bp, while the 3.94-year GBP125m A2 tranche was talked and priced at Libor plus 100bp.

The A1 notes are offered in Reg S and 144A format while the A2 is Reg S only. Both tranches are soft bullets.

According to Standard & Poor's, the deal's structure allows for shorter maturities of subordinate securities relative to senior securities. Therefore, a potential risk is that the issuer is unable to issue new subordinate notes to maintain minimum credit enhancement levels.

However, to mitigate this risk, the transaction features a so-called pre-funding mechanism, designed to maintain credit enhancement levels.

Additionally, there remains a degree of uncertainty regarding the outlook for the U.K. economy and the future movements in economic growth and unemployment rates, S&P said.

"As we observe that unemployment rates are correlated to the charge-off rates observed in consumer finance portfolios, there remains a concern that trust performance could deteriorate as a result of further increases," S&P analysts wrote. "Our base cases and rating stresses are designed to accommodate a level of this uncertainty."

Copyright Reuters, 2011