Fitch: Security Breaches Neutral for Credit Card ABS

Business Wire

NEW YORK--(BUSINESS WIRE)--

Credit card security breaches are unlikely to have a negative impact on credit card ABS, Fitch Ratings says. As two of the largest U.S. retailers were targeted during the past holiday season, we analyzed the potential effects of possible decreased card utilization and/or performance deterioration based on shifts in consumer behavior resulting from these types of breaches. Our cash flow analysis showed that a modest reduction in credit card usage due would be manageable for ABS trusts.

The cases of credit card breach discovered recently made headlines and could have undermined confidence in those retail organizations. However, our analysis has determined that the impact to any Fitch-rated retail credit card trusts would be minimal should similar instances occur. Credit card trusts for the most part require banks to maintain an ownership interest often in the range of 4%-7%. Because of this structural feature, potential fraud would be covered by the seller's interest, as the seller (or related bank) is typically obligated to reimburse the trust for any losses.

In addition, any decline in card usage that could lead to slower trust portfolio growth is covered under both partial and full purchase rate stress scenarios employed in Fitch's cash flow modeling. Performance deterioration, if any, resulting from shifts in consumer behavior is also reflected in the cash flow stresses where a change in performance metrics including yield, chargeoffs, and payment rate would be covered.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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