Manhattan Card launches US$200m credit-card securitisation programme

Sean Kennedy

MANHATTAN Card Co has launched a US$200 million credit-card securitisation issue, billed as the world's first publicly registered cross-border securitisation.

The company believes the issue to be the first time that assets from a foreign place - Hong Kong - have been securitised into the United States through a public offering registered with the US Securities and Exchange Commission.

Securitisation involves packaging an income stream - in this case the payments on credit cards - and issuing securities whose interest comes from the underlying credit card payments.

The money raised from this will finance Manhattan Card's operations and repay a one-year US$130 million loan.

'We have evaluated various options in taking out term funding and we have come to the conclusion that this five-year securitisation will achieve lower-cost funding than conventional five-year Hong Kong dollar costs,' finance director Gary Wang said.

The loan costs Manhattan Card 0.75 percentage point above the one-or three-month Hong Kong interbank offered rates against the securitised certificates' coupon of 0.25 percentage point above the one-month London interbank offered rate.

US credit-card transactions paid about 0.2 to 0.25 percentage point, said Seth Maerowitz, director of international capital markets with Chase Manhattan Asia.

The issue is fully guaranteed by Financial Security Assurance and is expected to win triple-A ratings from Standard & Poor's and Moody's Investors Service. A Hong Kong issue would have been limited by the territory's A3 foreign currency and A1 Hong Kong dollar ratings.

Under the terms of the deal, Manhattan Card sells 70 per cent of its receivables to Hong Kong Card Funding Corp, which will sell the receivables to a trust whose assets will consist of the receivables and collections on them.

The certificates will be issued on November 2 under the name Master Trust Series 1994-1 and are priced at par. The average life is 4.91 years.

The Hong Kong dollar income from the receivables will be swapped into US dollars to pay the coupon and the insurance policy premium payments.

About US$250 million will be transferred into the trust to cover fluctuations in the revenue from the receivables. The trust will start repaying the principal from June 1999 in US$25 million instalments ending in January 2000.

James Brew, Manhattan Card executive director, said the securitisation would have no impact on the company's net assets and the receivables would not be booked off balance sheet.

Mr Wang said the company had consulted the Hong Kong Monetary Authority and the stock exchange.

Under the terms of the trust, the company could issue more receivables but it would first have to build up its assets again after securitising 70 per cent in this issue, he said.

Chase Securities and Chase Manhattan Asia are financial advisers for the securitisation.

Meanwhile, Manhattan Card expects to launch a mortgage-backed security issue early next year. The issue will be at least HK$1 billion and will be rated to facilitate secondary market liquidity.

The company is also considering a US dollar certificate of deposit issue.