Credit card ABS to weather losses in recession-S&P

NEW YORK Feb 5 (Reuters) - Credit card ABS investors are unlikely to experience payment defaults even on lower-rated "BBB" securities if the U.S. economy experiences a mild or even deeper recession, said Standard & Poor's in a report on Tuesday.

The rating agency said current volatility in the structured finance market has raised concerns about the resilience of credit card asset-backed securities and whether they can remain impervious to the credit crunch facing consumers.

Magnifying those concerns is a decline in home prices, which brought an end to a long cycle of low-interest-rate credit to consumers, rising energy costs, declining economic growth, and growing unemployment.

Standard & Poor's Chief Economist David Wyss expects the economy will likely skirt a recession this year, but he said many things can go awry.

A deeper housing downturn, higher bond yields created by a falling dollar, and higher oil prices would be enough to create at least a mild recession that could run from now through the second quarter of 2008, Wyss said.

S&P said if the economy experiences a mild recession, similar to the path of the 2001 recession, or fell into an even deeper one, "BBB"-rated credit card ABS investors are unlikely to experience payment defaults.

However, in both recession scenarios, it is conceivable that a number of trusts would be required to trap excess spread (credit support) and some securities may be placed on CreditWatch with negative implications or downgraded, it said.

Should the portfolio performance variables deteriorate and current base case assumptions become inappropriate for any credit card issuer, S&P said the transactions would be subject to review for negative rating action.

The rating agency said credit card ABS structures, and their underlying securitized portfolios, have certain characteristics that help mitigate some of the risks that other sectors in the structured finance market are currently facing.

Consolidation over the last 10 years has resulted in several large, diversified investment-grade card originators that dominate the credit card ABS sector. Only a few single-retailer credit card ABS issuers remain, and there are an even smaller number of pure subprime credit card issuers.

In addition, S&P said, credit card receivables of prime borrowers with FICO credit scores higher than 660 make up more than two-thirds of the securitized portfolios, while those from nonprime and subprime borrowers with FICO scores lower than 660 represent less than a third. (Reporting by Nancy Leinfuss; Editing by Leslie Adler)