Approximately $803 million of asset-backed securities affected
New York, May 20, 2009 -- Moody's Investors Service has placed on review for possible downgrade
12 classes of asset-backed securities issued out of the First National
Master Note Trust (the "Trust"). These securities are backed by
$2.5 billion of consumer credit card receivables originated
and serviced by First National Bank of Omaha ("FNBO") and its affiliates.
The review is driven by deterioration in some of the Trust's key performance
metrics, primarily the charge-off and delinquency rates.
Furthermore, FNBO's relatively small credit card program ($3
billion) lacks the larger banks' economies of scale and makes competing
in the commoditized credit card market more difficult, especially
in the current recessionary environment. In fact, many card
companies are struggling to maintain the profitability of their card programs.
If the long-term profitability of this business line is called
into question, FNBO could choose to sell or liquidate all or a portion
of its credit card portfolio (e.g. by selectively closing
card accounts). Liquidation, in particular, could cause
adverse Trust collateral performance.
FNBO has grown their portfolio mainly by competing on price with the larger,
national-scale card issuers using balance transfer and promotional
"teaser rate" offers. We acknowledge that FNBO's
portfolio has a relatively high proportion of accounts with high credit
scores (and a relatively low proportion of accounts with low credit scores);
however, that difference in credit profile has not made a meaningful
distinction in the Trust's credit performance relative to the Moody's
Credit Card Index.
In the initial stage of the current economic cycle, several of the
Trust's key collateral performance measures compared favorably to the
industry as measured by Moody's Credit Card Indices. That comparative
advantage was attributable, in part, to a portfolio consisting
of mostly prime credit card receivables as measured by credit score.
However, the Trust has grown approximately 25% since early
2007. We believe that originations from the 2007 and 2008 vintages
will under-perform originations from previous vintages over the
next year. Furthermore, these originations are entering the
peak loss period typical of new credit card originations.
In the last six months, the positive performance differential between
the Trust and the industry average has substantially diminished.
Like other credit card issuers, collateral performance has deteriorated
in the current economic environment. For example, the Trust's
charge-off rate, which in April 2009 reached 8.8%,
has risen approximately 53% from April 2008. Similarly,
the Trust's delinquency rate, a harbinger of near-term charge-offs,
is also rapidly rising and reached 4.9% in April 2009,
an increase of 69% from a year ago. Moreover, the
Trust's principal payment rate has maintained a steady negative decline,
falling to 12.70% in April 2009 from 13.88%
a year earlier. The principal payment rate is a measure of cardholders'
willingness and ability to repay their credit card balances. It
is also a measure of the speed by which securitized investors will be
repaid if an amortization event is triggered; therefore, a
drop in this rate may have negative consequences for securitized noteholders.
Moody's review will focus on FNBO's ability to address and mitigate the
risk of further deterioration in Trust performance. At the conclusion
of the review, which is typically no longer than 90 days,
Moody's may downgrade the notes. A downgrade, if any,
of the senior notes is not likely to exceed two notches. Any downgrade
of the subordinate notes is not likely to exceed four notches.
The complete rating actions are as follows:
UNDER REVIEW FOR POSSIBLE DOWNGRADE
Issuer: First National Master Note Trust:
$411,250,000 Class A Asset Backed Notes, Series
2007-1, rated Aaa, previously on April 24, 2007
$40,000,000 Class B Asset Backed Notes, Series
2007-1, rated A2, previously on April 24, 2007
$48,750,000 Class C Asset Backed Notes, Series
2007-1, rated Baa2, previously on April 24, 2007
Up to $44,800,000 Class B Asset Backed Notes,
VFN Series 2004-1, rated A2, previously on June 27,
2008 Assigned A2
Up to $43,400,000 Class C Asset Backed Notes,
VFN Series 2004-1, rated Baa2, previously on June 27,
2008 Assigned Baa2
Up to $11,200,000 Class D Asset Backed Notes,
VFN Series 2004-1, rated Ba2, previously on June 27,
2008 Assigned Ba2
Up to $48,000,000 Class B Asset Backed Notes,
VFN Series 2008-2, rated A2, previously on October
6, 2008 Assigned A2
Up to $46,500,000 Class C Asset Backed Notes,
VFN Series 2008-2, rated Baa2, previously on October
6, 2008 Assigned Baa2
Up to $12,000,000 Class D Asset Backed Notes,
VFN Series 2008-2, rated Ba2, previously on October
6, 2008 Assigned Ba2
Up to $44,000,000 Class B Asset Backed Notes,
VFN Series 2008-3, rated A2, previously on November
7, 2008 Assigned A2
Up to $42,625,000 Class C Asset Backed Notes,
VFN Series 2008-3, rated Baa2, previously on November
7, 2008 Assigned Baa2
Up to $11,000,000 Class D Asset Backed Notes,
VFN Series 2008-3, rated Ba2, previously on November
7, 2008 Assigned Ba2
The Series 2007-2 is excluded from this rating action due to a
relatively near-term expected maturity date in November 2009.
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 Credit Policy
& Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
FNBO, based in Omaha, Nebraska, reported total assets
of $9.9 billion as of September 30, 2008. FNBO's
long-term bank deposits are rated A3 and its Bank Financial Strength
rating is C. The outlook on all ratings is negative.
For more information please visit www.Moodys.com
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's places FNBO credit card receivables-backed securities on review for possible downgrade
Structured Finance Group
Moody's Investors Service