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Rating Action:

Moody's places FNBO's credit card-backed senior and subordinate notes on review for possible downgrade

03 Mar 2010

Up to approximately $1.5 billion of asset-backed securities affected

New York, March 03, 2010 -- Moody's Investors Service has placed on review for possible downgrade seven classes of asset-backed securities issued out of the First National Master Note Trust ("FNMNT", or the "Trust"). These securities are backed by $2.7 billion of consumer credit card receivables originated and serviced by First National Bank of Omaha ("FNBO") and its affiliates.

RATIONALE

The review is driven by the recent downgrade of FNBO's long-term deposit rating and bank financial strength rating. The financial strength of FNBO, the seller/servicer for the Trust, is an important factor in Moody's determination of card ABS ratings, as an issuer's ongoing willingness and ability to maintain card utility (i.e. the purchase rate) is a significant driver of trust collateral performance in an early-amortization scenario. As such, the ratings on card ABS are linked to the financial strength and credit quality of the issuer.

The review is also driven by a growing concern with respect to the Trust's collateral performance. The Trust's worsening collateral performance increases the likelihood that the ABS bonds could hit an early amortization trigger.

FNBO Deposit Rating Downgraded

On February 9, 2010, Moody's downgraded FNBO's long-term deposit rating to Baa1 from A3, and reduced its bank financial strength rating ("BFSR") to C- from C. Following the downgrade, Moody's left FNBO's outlook negative. The downgrades were driven by the company's weaker-than-anticipated asset quality, as well as concerns about its capital position in light of the losses Moody's expects on its loan portfolio.

Collateral Performance Worsening

Although collateral performance is within or near our current range of expectations, we note that some important metrics (e.g. charge-offs and excess spread) are trending on a course that may breach these expectations in the near term.

In January, rising charge-offs have narrowed the excess spread margin to between 3.00% and 3.25% for several of the Trust's transactions Given the upward trajectory of delinquencies, which are often a harbinger of the trend in near-term charge-off rates, we expect charge-offs to continue to climb in the next few months. That means excess spread will likely continue to narrow. If the three month average excess spread falls below 0%, the related ABS notes will amortize ahead of their scheduled maturity date, which would require FNBO to turn to other funding sources (e.g. deposits, Federal Home Loan Bank advances, the Federal Reserve discount window) to finance any new purchases on the cards. Alternatively, FNBO could choose to close all or a portion of its card portfolio, which would very likely exacerbate collateral deterioration.

Other performance metrics also remain weak. For example, the principal payment rate ("PPR") for the industry as measured by Moody's Credit Card Index has improved over the last several months and was 17.5% in January. By comparison, the Trust's PPR has been quite low, averaging about 12.5% over the last 12 months, and has shown no signs of improvement of late. 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.

The Trust's yield also remains relatively low. In January, the Trust's yield was 16.3%. Meanwhile, the yield per Moody's Index was much higher, 21.5%. Many other issuers have bolstered their trust yield by employing a structural feature called "discounting." FNMNT has a discounting mechanism, but FNBO has so far chosen not to use it.

Moody's review will assess FNBO's efforts to mitigate charge-offs, increase yield or take any other action to increase excess spread and maintain FNMNT as an ongoing financing vehicle for its credit card portfolio. Furthermore, in light of the recent downgrade of FNBO's deposit and BSFR ratings, Moody's will reassess whether FNBO's willingness and ability to maintain card utility under stressed scenarios are consistent with the current credit enhancement and ratings on the FNMNT transactions.

The complete rating actions are as follows:

UNDER REVIEW FOR POSSIBLE DOWNGRADE

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), rated A2, previously on September 15, 2009 Assigned A2

Up to $18,750,000 Class B Asset Backed Notes, VFN Series 2008-3 Amended and Restated as of July 17, 2009), rated A2, previously on July 17, 2009 Assigned A2

$600,000,000 Class A Asset Backed Notes, Series 2009-1, rated Aaa, previously on June 15, 2009 Assigned Aaa

$112,500,000 Class B Asset Backed Notes, Series 2009-1, rated A2, previously on June 15, 2009 Assigned A2

Up to $86,250,000 Class B Asset Backed Notes, VFN Series 2009-2, rated A2, previously on June 29, 2009 Assigned A2

$525,000,000 Class A Asset Backed Notes, Series 2009-3, rated Aaa, previously on August 14, 2009 Assigned Aaa

$98,438,000 Class B Asset Backed Notes, Series 2009-3, rated A2, previously on August 14, 2009 Assigned A2

The Series 2007-1 is excluded from this rating action due to a relatively near-term expected maturity date in April 2010.

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.

BACKGROUND

FNBO, based in Omaha, Nebraska, reported total assets of $15 billion as of September 30, 2009. 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
William Black
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Gregory J. Gemson
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places FNBO's credit card-backed senior and subordinate notes on review for possible downgrade
No Related Data.
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