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04 Nov 2010
New York, November 04, 2010 -- Following the November 1 downgrade of Capital One Bank's long-term
senior unsecured rating to A3 from A2, Moody's ratings on
47 classes of asset-backed securities issued out of the Capital
One Multi-asset Execution Trust ("COMET") remain under
review for possible downgrade. Moody's has also extended
its review of the Counterparty Instrument Rating to the Swap Agreement
relating to credit card backed notes issued by COMET Class C(2004-3)
(the "Counterparty Rating"). The COMET securities are
backed by a $42 billion revolving pool of consumer and small business
credit card receivables originated by Capital One Bank (USA), N.A.
("Capital One Bank"). These securities were initially placed under
review for possible downgrade on July 28, 2010.
RATIONALE FOR MAINTAINING THE REVIEW STATUS
The one-notch downgrade to A3 of Capital One Bank, the seller/servicer
for COMET, is, in and of itself, a credit negative for
the COMET securities. Even so, COMET's collateral performance
trends, like those of the credit card industry at large, have
improved and appear to be on a positive credit trajectory. Our
continued review will focus on the strength of these positive credit trends
combined with the impact of the downgrade to the seller/servicer.
The financial strength of the seller/servicer 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. This linkage also reflects the
ongoing role of a seller/servicer in card ABS programs (e.g.
underwriting, risk management, and servicing). Therefore,
although it does not necessarily translate to a downgrade of the ABS,
a downgrade of a bank sponsor's credit rating increases the potential
for ratings volatility for the related card ABS program.
Like others in the credit card sector, Capital One's trust
performance materially deteriorated during the credit crisis. Unlike
most others, however, Capital One chose not to increase the
credit enhancement to its ABS notes. As a result, Moody's
downgraded the two most junior classes of notes in 2009. The ratings
on the more senior Class A and Class B notes, though marginally
weaker, remained unchanged.
Since then, concerns about collateral performance have abated somewhat.
For COMET, charge-offs have fallen from a peak of 12.7%
in March 2010 to 10.4% in September 2010. Even so,
looking back at the extreme and rapid deterioration in collateral performance
during the height of the credit crisis, we remain cautious about
the relatively recent improvement. For these reasons, and
in light of the downgrade of the sponsor bank, the COMET ratings
remain under pressure. A downgrade, if any, would not
likely be more than two notches.
The Counterparty Instrument Rating is based upon the pari passu ranking
of swap payments relative to the payments to the COMET Class C(2004-3)
noteholders in the transaction waterfall. Consequently, in
the ordinary course of events, the ability of COMET to honor its
obligations to make the swap payments is considered equal to its ability
to make the scheduled payments on the underlying notes. The ratings
history of the Swap is highly correlated to the ratings history of the
related COMET Class C(2004-3) notes. As a result,
given the extension of the review status on COMET Class C(2004-3)
Ba1 rating, so is the Counterparty Instrument Rating.
COLLATERAL PERFORMANCE EXPECTATIONS
Moody's performance expectations for COMET are unchanged. The current
expected range for the gross charge-off rate is 9.5%-12.5%,
for the principal payment rate is 14%-17%,
and for the yield is 20%-23%. Performance
of these metrics has been generally inside these ranges over the past
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
The principal methodology used in rating COMET and the Counterparty Rating
was Moody's Approach to Rating Credit Card Receivables-Backed Securities
rating methodology published in April 2007 and the "Framework for De-Linking
Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions
Moody's Methodology", published in October 2010. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
Further information on Moody's analysis of these transactions is available
on www.moodys.com. 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.
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's ratings on Capital One's credit card ABS remain under review for possible downgrade
250 Greenwich Street
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