Up to approximately $1.4 billion of asset-backed securities affected
New York, July 21, 2010 -- Moody's Investors Service has confirmed the ratings of five classes of
asset-backed securities issued out of the First National Master
Note Trust ("FNMNT", or the "Trust"). These securities are
backed by $2.9 billion of consumer credit card receivables
originated and serviced by First National Bank of Omaha ("FNBO") and its
affiliates.
RATIONALE
The action is based on two sets of facts. First, since the
FNMNT notes were placed under review in March, FNBO has taken specific
actions to improve the performance of the Trust. The implementation
of a 4% discount option and the addition of receivables to the
FNMNT have accelerated improvement in the Trust charge-off rate
and yield metrics. These actions have reduced the likelihood that
the bonds would breach a performance-related early amortization
trigger. We believe that the financial strength of FNBO combined
with the aforementioned Trust actions provide some indication of FNBO's
ability and willingness to maintain card utility under stress scenarios,
which is an important consideration underlying current ratings on the
FNMNT notes. Second, charge-off and delinquency rates
for the legacy collateral in the Trust prior to the recent receivables
addition have recently improved, in line with the general trend
for credit card ABS.
Issuer Discounting Improves Yield and Excess Spread
On July 1, FNBO implemented a 4% discount option for newly-generated
principal receivables in the FNMNT. Similar to the discounting
mechanisms employed by other credit card trusts, the FNBO discount
option will re-characterize 4% of monthly principal collections
as finance charge collections. Because the Trust will discount
only newly-generated principal receivables, however,
the boost to yield and excess spread will increase gradually over time,
likely reaching its peak early-2011. We estimate the peak
incremental benefit to yield and by extension, excess spread,
to be approximately 500 basis points.
The improvement to yield and excess spread may be tempered by the August
22 implementation of the Credit CARD Act, which is likely to reduce
the amount of yield that the FNMNT derives from late fees and over-limit
fees. However, we expect the combined effects of continued
improvement in the charge-off rate and the boost to yield from
principal discounting to more than offset the impact on excess spread
from the Credit CARD Act.
Addition of Receivables to the Trust Improves Charge-off Rate
During May, FNBO added over $400 million of credit card receivables
to the trust. This addition increased the aggregate amount of principal
receivables in the FNMNT to approximately $2.8 billion.
Because beginning-of-month principal receivables is the
denominator in our charge-off rate calculations, the May
increase in receivables had an immediate positive impact on the FNMNT
charge-off rate.
In June, the monthly Trust charge-off rate was 10.52%,
down from the previous three-month average of 12.40%.
Much of the recent months' improvement in the excess spread has been a
result of the decline in the Trust charge-off rate. In June,
excess spread was 6.92%, a substantial increase from
the 2.46% monthly excess spread just two months ago.
We expect further improvement in Trust excess spread to be driven predominantly
by principal discounting rather than marked improvements in the charge-off
rate.
Collateral Performance Has Stabilized
During the first five months of the year, the Trust charge-off
rate remained in excess of 12%, above Moody's expected range
of 9%-11%. However, in the two months
since the charge-off rate peaked in April at 12.9%,
charge-offs have declined. Additionally, the delinquency
rate has steadily improved from February's reading of 5.81%,
to 4.57% as of the June reporting period, which bodes
well for future charge-offs.
Moody's expected ranges for FNMNT key performance metrics remain unchanged.
These ranges are 18% - 23% for the yield, 9%
- 11% for the gross charge-off rate, and 12.5%
- 15.5% for the principal payment rate.
These performance expectations indicate our forward-looking view
of the likely range of performance over the medium term. From time
to time, we may, if warranted, change these expectations.
Performance that falls outside a given range may indicate that the collateral's
credit quality is stronger or weaker than anticipated when the related
securities were rated. Even so, a deviation from the expected
range will not necessarily result in a rating action nor does performance
within expectations preclude such actions. The decision to take
(or not take) a rating action is dependent on an assessment of a range
of factors including, but not exclusively, the performance
metrics.
The complete rating actions are as follows:
RATINGS CONFIRMED
Issuer: First National Master Note Trust
Up to $92,531,000 Class B Asset Backed Notes,
VFN Series 2008-2 (Amended and Restated as of September 15,
2009), confirmed at A2, previously on March 3, 2010
placed under review for possible downgrade
$600,000,000 Class A Asset Backed Notes, Series
2009-1, confirmed at Aaa, previously on March 3,
2010 placed under review for possible downgrade
$112,500,000 Class B Asset Backed Notes, Series
2009-1, confirmed at A2, previously on March 3,
2010 placed under review for possible downgrade
$525,000,000 Class A Asset Backed Notes, Series
2009-3, confirmed at Aaa, previously on March 3,
2010 placed under review for possible downgrade
$98,438,000 Class B Asset Backed Notes, Series
2009-3, confirmed at A2, previously on March 3,
2010 placed under review for possible downgrade
METHODOLOGY
The principal methodology used in rating the transaction was "Moody's
Approach To Rating Credit Card Receivables-Backed Securities,"
which can be found at www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website. In addition, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
BACKGROUND
FNBO, based in Omaha, NE, is the lead bank subsidiary
of First National of Nebraska, Inc. FNBO's reported total
assets were approximately $11.4 billion as of March 31,
2010. FNBO's long-term bank deposits are rated Baa1 and
its Bank Financial Strength rating is C-. The outlook on
all ratings is negative.
For more information please visit www.Moodys.com.
New York
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Jeffrey Hibbs
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms ratings on FNBO's credit card-backed senior and subordinate notes
