Approximately $5.2 billion of asset-backed securities affected
New York, September 17, 2014 -- Moody's Investors Service updated its methodology for rating credit card
receivables-backed securitizations on 16 September 2014.
As a result of the methodology update, Moody's has upgraded the
ratings of 5 classes of subordinated asset-backed securities issued
out of Synchrony Credit Card Master Note Trust (formerly known as GE Capital
Credit Card Master Note Trust), sponsored by Synchrony Bank (formerly
known as GE Capital Retail Bank) (unrated). In addition,
Moody's has placed under review for possible downgrade 8 classes of notes
issued out of the trust. Moody's review of the notes will extend
for a period of time deemed reasonable to determine what, if any,
action the sponsor may take to bolster the credit of its related card
notes. Finally, Moody's has affirmed 8 classes of notes
due to the short maturities (i.e., before April 2015)
of those notes.
The updated methodology, "Moody's Approach to Rating Credit Card
Receivables-Backed Securities" is available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF379191
The complete rating actions are as follows:
Issuer: Synchrony Credit Card Master Note Trust
RATINGS UPGRADED
$93,770,492 Series 2011-2 Class B Notes,
Upgraded to A1 (sf); previously on 16 June 2011 assigned A2 (sf)
$57,704,918 Series 2012-3 Class B Notes,
Upgraded to A1 (sf); previously on 18 April 2012 assigned A2(sf)
$50,491,803 Series 2012-4 Class B Notes,
Upgraded to A1 (sf); previously on 20 June 2012 assigned A2 (sf)
$61,803,279 Series 2011-2 Class C Notes,
Upgraded to Baa1 (sf); previously on 16 June 2011 assigned Baa2 (sf)
$38,032,786 Series 2012-3 Class C Notes,
Upgraded to Baa1 (sf); previously on 18 April 2012 assigned Baa2(sf)
RATINGS PLACED UNDER REVIEW FOR POSSIBLE DOWNGRADE
$250,000,000 Series 2010-2 Class A Notes,
Aaa (sf) Placed on Review for Possible Downgrade; previously on 16
April 2010 assigned Aaa (sf)
$600,000,000 Series 2012-2 Class A Notes,
Aaa (sf) Placed on Review for Possible Downgrade; previously on 2
February 2012 assigned Aaa (sf)
$600,000,000 Series 2012-5 Class A Notes,
Aaa (sf) Placed on Review for Possible Downgrade; previously on 21
June 2012 assigned Aaa (sf)
$500,000,000 Series 2012-7 Class A Notes,
Aaa (sf) Placed on Review for Possible Downgrade; previously on 17
October 2012 assigned Aaa (sf)
$800,000,000 Series 2013-1 Class A Notes,
Aaa (sf) Placed on Review for Possible Downgrade; previously on 26
March 2013 assigned Aaa (sf)
$40,000,000 Series 2010-2 Class B Notes,
A1 (sf) Placed on Review for Possible Downgrade; previously on 9
November 2012 assigned A1 (sf)
$27,500,000 Series 2010-2 Class C Notes,
Baa1 (sf) Placed on Review for Possible Downgrade; previously on
9 November 2012 assigned Baa1 (sf)
$68,138,802 Series 2013-1 Class C Notes,
Baa2 (sf) Placed on Review for Possible Downgrade; previously on
26 March 2013 assigned Baa2 (sf)
RATINGS AFFIRMED
$475,000,000 Series 2009-4 Class A Notes,
Affirmed Aaa (sf); previously on 25 November 2009 assigned Aaa (sf)
$500,000,000 Series 2010-1 Class A Notes,
Affirmed Aaa (sf); previously on 31 March 2010 assigned Aaa (sf)
$750,000,000 Series 2012-1 Class A Notes,
Affirmed Aaa (sf); previously on 25 January 2012 assigned Aaa (sf)
$76,000,000 Series 2009-4 Class B Notes,
Affirmed A1 (sf); previously on 25 November 2009 assigned A1 (sf)
$80,000,000 Series 2010-1 Class B Notes,
Affirmed A1 (sf); previously on 9 November 2012 assigned A1 (sf)
$52,250,000 Series 2009-4 Class C Notes,
Affirmed Baa1 (sf); previously on 25 November 2009 assigned Baa1
(sf)
$55,000,000 Series 2010-1 Class C Notes,
Affirmed Baa1 (sf); previously on 9 November 2012 assigned Baa1 (sf)
$63,880,126 Series 2012-1 Class C Notes,
Affirmed Baa2 (sf); previously on 25 January 2012 assigned Baa2 (sf)
RATINGS RATIONALE
Today's rating actions reflect the implementation of the updated methodology.
In the updated methodology we refined our approach to more explicitly
incorporate the effects of a sponsor default. This change is prompted
by our analysis of the performance of credit card securitizations in cases
in which the sponsor became insolvent and closed the accounts that it
had securitized.
Our rating approach for credit card receivables-backed asset-backed
securities (ABS) consists of four main steps: (1) analyzing the
transaction's collateral performance and cash flows to determine
its Aaa level of credit enhancement given sponsor default (Aaa LGSD),
i.e., the maximum stress level of credit enhancement
for the transaction, consistent with a Aaa (sf) rating, assuming
that the transaction's sponsor has revoked charging privileges on
its credit card accounts; (2) determining the level of credit enhancement
consistent with a Aaa (sf) rating (Aaa CE) by haircutting the Aaa LGSD
based on the sponsor's credit quality, which in our methodology
is the same as its public rating, or if not available, a private
monitored rating, or in limited circumstances a low-volatility
credit estimate; (3) adjusting the transaction's senior and
subordinate note ratings given the credit enhancement available to protect
those notes and the minimum credit enhancement necessary to support those
ratings; and (4) deriving the final ratings of the notes considering
other risks in the transaction, such as operational, counterparty
and legal risks.
As a result of the implementation of the updated methodology and the resulting
trust's new Aaa CEs (each Series has its own), the enhancement
available for the upgraded notes is now consistent with higher ratings.
Similarly, the enhancement available for those notes under review
for possible downgrade might not be consistent with their current ratings.
Ratings on 8 classes of ABS maturing within the next six months (i.e.,
before April 2015) were affirmed due to the bonds short maturity.
Downgrades, if any, are not likely to exceed an average of
two notches and a maximum of six notches.
Moody's review of the card-backed notes, which typically
takes up to 90 days, will extend for a period of time deemed reasonable
to determine what, if any, action Synchrony Bank may take
to bolster the credit of its related card notes.
Assets of the trust consist of private label and co-branded credit
card receivables generated on accounts originated and underwritten by
Synchrony Bank. Retailers which are currently included in the trust
portfolio are, among others, JCPenney, Lowe's,
Sam's Club, Wal-Mart, Dillard's, Gap, Belk
and Chevron.
Moody's expects performance in the range of 5.5% -
7.5% for charge-offs, 26.0% -
29.0% for yield and 12.5% - 14.5%
for the principal payment rate.
Moody's performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. From time to time, Moody's may, if warranted,
change these expectations. Performance that falls outside the given
range may indicate that the collateral's credit quality is stronger or
weaker than Moody's had 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 metrics.
Methodology Underlying the Rating Actions:
The principal methodology used in these ratings was "Moody's Approach
To Rating Credit Card Receivables-Backed Securities" published
in September 2014. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the rating:
Up
Although this rating action specifically relates to the implementation
of the new methodology, in the future Moody's could upgrade the
ratings of the securities if our expectation of the trust's performance
following a sponsor default and portfolio shutdown (i.e.,
Aaa LGSD) improves materially, specifically, if the charge-off
rate falls or the payment rate or yield rises. An upgrade to the
bank sponsor public rating, private monitored rating or low volatility
credit estimate, as applicable, could also lead to an upgrade
to the rating of the securities, because we use the rating of the
sponsor to assess the likelihood of defaulting and shutting down its credit
card portfolio.
Down
Although this rating action specifically relates to the implementation
of the new methodology, in the future Moody's could downgrade the
ratings of the securities if our expectation of the trust's performance
following a sponsor default and portfolio shutdown (i.e.,
Aaa LGSD) deteriorates materially, specifically, if the charge-off
rate rises or the payment rate or yield falls. A downgrade to the
bank sponsor public rating, private monitored rating or low volatility
credit estimate, as applicable, could also lead to a downgrade
to the rating of the securities, because we use the rating of the
sponsor to assess the likelihood of defaulting and shutting down its credit
card portfolio.
Loss and Cash Flow Analysis:
In rating this transaction, Moody's uses a cash flow model
to determine the collateral losses in a maximum stress scenario.
As a second step, Moody's haircuts such collateral losses based
on the sponsor's credit quality. Finally, Moody's
compares note available credit enhancement with the collateral losses,
taking into account loss allocation and other structural features,
to derive the expected loss for each rated instrument.
Stress Scenarios:
Moody's quantitative analysis entails an evaluation of scenarios that
stress factors contributing to sensitivity of ratings and take into account
the likelihood of severe collateral losses or impaired cash flows.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
Moody's describes its loss and cash flow analysis in the section
"Rating Rationale" of this press release.
Moody's describes the stress scenarios it has considered for this
rating action in the section "Rating Rationale" of this press
release.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alan Birnbaum
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Matias Langer
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's takes actions on Synchrony cards ABS following implementation of new methodology
