Fitch Introduces U.S. Credit Card ABS Seller/Servicer Criteria

NEW YORK – Fitch Ratings has published criteria that describes the principal factors considered in the agency’s rating of U.S. credit card seller/servicers. This addendum compliments Fitch’s previously released ‘Rating ABS Seller/Servicers: Credit Where Credit is Due’ and outlines operational risks unique to the origination and servicing of credit card receivables.

Fitch’s approach to credit card operational risk is distinctive in a number of ways. First, the criteria is developed to reflect the risks unique to credit card receivables. ‘We think it is important to develop asset specific operational criteria rather than applying general standards across all asset classes,’ says Kevin Duignan, Managing Director, Fitch Ratings.

Second, Fitch’s approach integrates both the seller and servicer components of the operations rather than focusing solely on servicing. ‘New account originations are vital for the stability of a credit card portfolio, since credit card ABS issuers have to regularly add receivables to their trusts in order to ensure sufficient collateral is available to support outstanding ABS transactions,’ said Rui Pereira, Senior Director, Fitch Ratings. Finally, Fitch’s criteria clearly describes the impact of the seller/servicer’s financial condition on the quality of operations. ‘Fitch’s ability to incorporate the financial credit quality of the originator and servicer into the operational and structured finance analysis is one of the hallmarks of our analysis,’ said Duignan.

Fitch’s analysis of credit card ABS seller/servicers will encompass three major evaluation factors (corporate performance, origination and servicing) and adopt a similar 1 (highest) to 5 (lowest) rating scale already utilized by Fitch’s Operational Risk Group for other areas of structured finance.

Fitch became the first agency to publish formal rating criteria on ABS seller/servicers in September. Future sectors to be analyzed by Fitch include student loan and auto loan ABS. ‘Rating ABS Seller/Servicers: Credit Where Credit is Due,’ dated Sept. 14, 2004, is available on the Fitch Ratings web site at www.fitchratings.com.