Nov 30 - Fitch does not anticipate any effect on the ratings on the GE
Capital Credit Card Master Trust (GECCC Trust) near term as a result of the
downgrade to J.C. Penney Co. Inc. and J.C. Penney Corporation Inc. (J.C.
Penney). Fitch downgraded the Issuer Default Ratings assigned to J.C. Penney to
'B' from 'BB-' on Nov. 13, 2012.
The J.C. Penney credit card accounts designated to the GECCC Trust are mainly
designed to facilitate in store purchases. General Electric Capital Corporation
underwrites the credit and provides funding for the receivables, a portion of
which is derived from securitization. As of Aug. 13, 2012, J.C. Penney private
label and co-brand cards comprised 23.3% of the trust's total $17.6 billion in
Fitch believes GECCC's available credit enhancement is amply sufficient to
support existing ratings, particularly considering the current performance of
the receivables. The current break-even multiple under a 'AAA' stress scenario
is 10x, well above Fitch's benchmark of 4.5x. However, if J.C. Penney continues
to struggle over the longer term card usage could decline and foster adverse
selection, resulting in weaker receivables performance. Should such performance
deterioration become significant, Fitch will review its steady state assumptions
for the J.C. Penney products and the ratings assigned relative to available
An Issuer Default Rating (IDR) is an assessment of an issuer's relative
vulnerability to default on financial obligations, and J.C. Penney's was
downgraded due to significant deterioration in sales and gross margin
compression. Fitch's credit card ABS cash flow model includes a purchase rate
stress, which is used to simulate the loss of one or more key partnerships,
retailer bankruptcies, or the effect of regulatory constraints. Purchase rate is
a measure of new receivables generation, but it also measures cardholder usage.
A lower purchase rate results in a declining portfolio and an inability to
reinvest all of the monthly principal collections in newly generated credit card
receivables. Since credit card receivables generate yield, which is used to pay
trust expenses, including interest to bondholders, a failure to generate new
receivables could ultimately result in negative carry and excess spread
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.