Credit card debt securitization (credit card receivable securitization) is a form of bond financing in which credit card receivables are used as collateral and fixed-income investment instruments are issued by specific trust institutions.

Even if a credit card is securitized, it still needs to be repaid, but the creditor has changed from the bank to the person taking over. Although the debt relationship with the bank has been terminated, if you continue to not repay, then in the credit report The bad records on the card will not be eliminated automatically, and may even last a lifetime, and the cardholder may also be subject to various means of debt collection by creditors.

The securitization business of credit card receivables mainly has the following characteristics:

It mainly adopts the issuance structure of a master trust. Compared with a single trust, a master trust allows the sponsor to transfer new accounts receivable to the master trust at any time as needed, and issue different series of fixed-income securities from time to time accordingly. Since credit card debt is characterized by revolving credit, credit card holders can consume, borrow, and repay at any time. Therefore, the balance of credit card debt may fluctuate significantly depending on the cardholder's behavior. Therefore, credit card receivables Securitization is well suited to a master trust structure.

For investors, under the issuance structure of the master trust, investors share the income generated by the same sponsor's trust asset pool. Since the size of the master trust asset pool is usually larger than that of a single trust, is large, so the risks are spread out.

The securitized asset pool has three different cash flow turnover periods. The cash flow cycle includes the receivables cycle, agreed repayment period and early repayment period. During the receivables cycle, as credit card receivables continue to be repaid, newly generated credit card receivables are continuously injected into the asset pool to maintain the stability of the asset pool. Internationally, the receivables cycle usually ranges from 2 to 11 years.

During the agreed repayment period, new receivables will no longer be injected, and the size of the asset pool will continue to decrease until all investors’ principal and interest are paid off. The period is usually 12 months. The early repayment period is an advanced institutional arrangement. When the asset pool shrinks severely or when the sponsor has serious problems, the securitized assets will automatically initiate the forced early repayment process and immediately begin to repay investors' principal. This institutional arrangement ensures the interests of investors to the greatest extent and avoids long-term market risks of securitized assets.

A variety of credit enhancement methods ensure the stability of investors’ income. In order to obtain an investment-grade credit rating, originators often use various credit enhancement methods. Commonly used methods include excess spread, cash collateral account CCA, and collateral invested account CIA. ) and set the subordination.

The excess ratio means that in addition to repaying investors’ normal principal and interest, the cash flow generated by credit card receivables should also be sufficient to make up for various related expenses, losses and reductions in receivables. Fluctuations in the asset pool. If the securitized assets operate normally, the cash flow generated by credit card receivables is sufficient to pay investors' principal and interest; once problems arise, the excess cash flow generated will need to be used to repay investors' principal and interest.

Cash Collateral Account (CCA) is a cash trust account independent of securitized trust assets. Once special circumstances occur and the excess ratio is exhausted and it is still insufficient to repay investors’ principal and interest, it needs to be used Cash Collateral Account. Cash mortgage accounts are generally composed of third-party bank loan investments, and the repayment order is after ordinary investors. The funds in the account can be invested in short-term securities assets that can be cashed at any time.

A collateral investment account (CIA) is similar to a private equity investment in securitized assets and functions like a cash collateral account. It is usually formed by a bank after a credit rating company makes an investment grade rating.

The use of subordination divides the securitized asset pool into two levels: priority (A) and subordination (B). The priority is discharged before the subordination. If In special circumstances, when the excess ratio, cash mortgage account and investment mortgage account are insufficient to repay the principal and interest of the priority class, the losses will be borne by the subsidiary class.