June 22, 2009
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News: Citigroup Makes $1.25 CC Backed Deal
Last week Citigroup displayed a sign of how the market has progressed in recent weeks. Citigroup a major player in the financial industry sold $1.25 billion of credit card debt backed assets. The deal which originally amounted to $1 billion was not eligible for sale under the Term Asset Backed Securities Loan Facility (TALF) and is an indication on how the market has taken one more positive step. The credit card deal is supported by long-term and conservative investors and does not use Federal funds to make purchases. The deal comes in advance of the loan application deadline for the TALF program which is scheduled to expire at the end of 2009. It is a welcomed sign by most experts who say it indicates investors are beginning to feel more comfortable with risks associated with credit card debt.
In June, Citigroup made a $4 billion deal which also included credit card debt backed loan that did qualify for the TALF program which yield 2.10 points. The bank also sold $3 billion of credit card debt backed loan in March with 1.75 points which was eligible for the TALF as well. The TALF program has strict guidelines as to who is available to borrow which excludes many traditional buyers such as insurance companies, money managers, and foreign investors. These investors are those returning companies to the market that are taking advantage of the Citigroup deals and the recent JPMorgan Chase sale as well. As the market continues to see these types of deals increase, the Fed will be able to begin scaling back its market support.
Issuance of assets backed securities has fallen drastically from last year. Despite the climb to over $60 billion since March when the Fed launched its program, it remains down by 50%. The TALF program allocated up to $200 billion available for loans to qualifying companies with a one year term. The funds are fully secured by the Asset Backed Securities (ABS) and is protected by the U.S. Treasury Department. The newest Citigroup credit card deal signals renewed interest and is a modest indicator that the economy is regaining strength.