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21 Aug 2009
Approximately $600 million of asset-backed securities affected
New York, August 21, 2009 -- Moody's Investors Service has downgraded the ratings on the VFN Series
2008-2 notes and confirmed the ratings on the Series 2007-1
notes issued out of the First National Master Note Trust (the "Trust").
These rating actions conclude the review initiated on May 20, 2009.
The notes are backed by $2.5 billion of consumer credit
card receivables originated and serviced by First National Bank of Omaha
("FNBO") and its affiliates.
VFN SERIES 2008-2
The downgrade of the VFN Series 2008-2 classes is primarily 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 ($4.4 billion
on a managed basis) lacks the economies of scale of larger bank card issuers
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 the credit quality for those card originations
from the 2007 and 2008 vintages (i.e. those originations
made during the peak of the credit expansion) are generally weaker and
will therefore 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.
The positive performance differential between the Trust and the industry
average has substantially diminished in the last 12 months. Like
other credit card issuers, collateral performance has deteriorated
in the current economic environment. For example, the Trust's
charge-off rate, which in July 2009 reached 9.7%,
has essentially doubled since July 2008. Similarly, the Trust's
delinquency rate, a harbinger of near-term charge-offs,
has also increased by a similar magnitude from a year ago and reached
4.8% in July 2009. Moreover, the Trust's principal
payment rate has maintained a steady negative decline, falling to
12.6% in July 2009 from 14.9% 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.
The confirmation of the Series 2007-1 note ratings is driven primarily
by the expectation that principal collections will be accumulated for
the benefit of these notes in the very near term. Starting in September
and for each month thereafter until maturity, available principal
collections totaling up to 12.5% of the initial invested
amount of the Series 2007-1 notes will be allocated to an accumulation
account. These amounts essentially mitigate the Series 2007-1
notes exposure to the credit risk associated with the performance of the
Trust's credit card receivables. The greater the amounts
accumulated, the greater the credit risk mitigation. The
Series 2007-1 notes are expected to mature in April 2010.
The Series 2007-1 has considerably less credit enhancement than
the more recent series of notes issued out the trust. For example,
the Series 2007-1, Aaa-rated Class A note benefits
from 17.75% of subordination compared to 24.0%
available to the senior class (also rated Aaa) in the recently issued
Series 2009-3. In our view, the accumulation of principal
collections, leveraged by the transaction's other structural
features, outweighs the lower available credit enhancement for this
The complete rating actions are as follows:
Issuer: First National Master Note Trust, Series 2007-1
Cl. A, Confirmed at Aaa; previously on May 20,
2009 Aaa Placed Under Review for Possible Downgrade
Cl. B, Confirmed at A2; previously on May 20,
2009 A2 Placed Under Review for Possible Downgrade
Cl. C, Confirmed at Baa2; previously on May 20,
2009 Baa2 Placed Under Review for Possible Downgrade
Issuer: First National Master Note Trust, VFN Series 2008-2
Cl. B - VFN, Downgraded to A3; previously on
May 20, 2009 A2 Placed Under Review for Possible Downgrade
Cl. C - VFN, Downgraded to Ba2; previously on
May 20, 2009 Baa2 Placed Under Review for Possible Downgrade
Cl. D - VFN, Downgraded to B3; previously on
May 20, 2009 Ba2 Placed Under Review for Possible Downgrade
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 $9.2 billion as of June 30, 2009. FNBO's
long-term bank deposits are rated A3 and its Bank Financial Strength
rating is C. The ratings are currently under review for possible
For more information please visit www.Moodys.com.
Structured Finance Group
Moody's Investors Service
Moody's resolves review action for FNBO credit card receivables-backed notes
Structured Finance Group
Moody's Investors Service
No Related Data.
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