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.
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
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
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
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
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
$112,500,000 Class B Asset Backed Notes, Series
2009-1, rated A2, previously on June 15, 2009
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
$98,438,000 Class B Asset Backed Notes, Series
2009-3, rated A2, previously on August 14, 2009
The Series 2007-1 is excluded from this rating action due to a
relatively near-term expected maturity date in April 2010.
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.
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.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's places FNBO's credit card-backed senior and subordinate notes on review for possible downgrade
Gregory J. Gemson
Structured Finance Group
Moody's Investors Service