MOODY'S CONFIRMS RATINGS OF METRIS COMPANIES INC. (SENIOR AT Ba3)
Moody's Investors Service today confirmed the ratings of credit card specialist Metris Companies Inc. (Senior at Ba3) and its bank subsidiary Direct Merchants Credit Card Bank, N.A. (Deposits at Ba1). The ratings had been placed on review for possible downgrade on May 11 following Metris's announcement that it had agreed to acquire a $1.3 billion credit card portfolio from GE Capital. The review reflected concerns about the company's aggressive acquisition strategy and its capitalization and funding plans. The ratings are no longer on review.
Moody's said that Metris appears to have sufficient capacity to support the pending acquisition, and has successfully integrated several other acquisitions in the past two years. In addition, the rating agency believes that the substantial equity position now held by the Thomas H. Lee Company is likely to have a moderating influence on the company's risk taking. Moody's stated that although the company's core business strategy appears to have been diluted by its rapid pace of acquisitions, and the company's plan to fund more assets at its bank subsidiary will modestly increase parent company double leverage, a ratings downgrade is not warranted in light of the company's solid core earnings and good reserves.
The ratings outlook for Metris is stable. The rating agency noted that key considerations for the ratings include the company's pace of acquisitions as well as the economic environment. The company's ratings could be negatively affected should the company chose to accelerate its pace of acquisitions or pursue an acquisition which stretched the companies financial and managerial resources. The ratings could also face greater downward pressure should the economic environment deteriorate substantially, weakening consumer credit in general and particularly the subprime borrowers on which the company focuses.
The following ratings were confirmed:
Metris Companies Inc. - the rating of Ba3 for the unsecured senior notes; and the rating of Ba3 for the bank credit facility.
Direct Merchants Credit Card Bank, N.A. - the Ba1 rating of the bank for long-term deposits; the Ba2 rating of the bank for other long-term senior obligations; the Ba2 issuer rating; the Not Prime rating of the bank for short-term deposits and other short-term senior obligations; and the D bank financial strength rating.
Metris Companies Inc., headquartered in St. Louis Park, Minnesota, is an information-based direct marketer of credit card products and fee-based services, primarily to moderate income consumers. At March 31, 1999, Metris had total managed assets on a pro forma basis including the GE acquisition of $6.6 billion, and ranked pro forma as the thirteenth largest credit card issuer in the U.S.
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