U.S. credit card asset-backed securities (ABS) new issuance volume declined over 80% to approximately $2.5 billion in the first half of 2020 from $12.6 billion in the first half of 2019. Spreads widened as market uncertainty rose in March when COVID-19-related restrictions and state quarantines peaked. As of Feb. 21, 2020, five-year 'AAA' credit card ABS spreads were 28 basis points (bps) to swaps, widening out to 336 bps as of March 20, and have since come back to 28 bps as of Aug. 14. Approximately $25.4 billion in credit card ABS matured during the first half of 2020, which far outpaced the $2.5 billion in new issuance volume over the same period. We expect issuers to remain opportunistic in light of market conditions and availability of funding sources.

Although credit card ABS performance has generally been insulated from COVID-19-related effects, uncertainty persists regarding future performance, and banks have accordingly increased their loan loss reserves in the second quarter. The August unemployment rate was 8.4%, and continues to decline from April and May highs of 14.7% and 13.3%, respectively. Consumer spending has picked up marginally since April as states have gradually entered phases of reopening. Although July consumer spending rose 1.9%, it represented a slowdown from May and June figures of 8.6% and 6.2%, respectively. Consumer confidence remains depressed since April after the onset of COVID-19-related restrictions. The near-term outlook remains challenging as some states have reversed or paused phases of reopening, COVID-19 infection rates remain generally high, and Congress remains at an impasse in stimulus negotiations.

Total household debt remained relatively flat, declining by $34 billion to $14.27 trillion in the second quarter of 2020 from $14.30 trillion in the first quarter, according to data from The Federal Reserve Bank of New York, which marked the first decline since 2014. Of the $14.27 trillion in consumer spending, nationwide credit card balances decreased to approximately $820 billion in the second quarter, down from approximately $890 billion in the first quarter, representing the sharpest decline since first-quarter 2004. As of second-quarter 2020, total extended credit card limits was approximately $3.9 trillion. In comparison, the U.S. CCQI bankcard and private label indices represent approximately $174 billion of receivables (about 21% of total credit card balances) as of June 2020.

Declines have largely been in discretionary spending, with travel and leisure expenditures hit hardest as stay-at-home orders and threats of reinstatements linger. As businesses have gradually reopened, consumer spending has picked up momentum. The trajectory of the recovery remains dependent upon when COVID-19 is effectively contained. Whether federal relief programs will be renewed will also affect consumer confidence to spend again.

Bankcard and private-label credit card ABS collateral performance has broadly remained stable through the second quarter due to the credit quality of the collateral pools and boosted by government support, and originators' temporary COVID-19-related deferment programs. We believe our credit card base-case and stressed assumptions continue to adequately capture the risks for the receivables. We also believe the strong credit profile of the collateral pools will limit the adverse effects of the pandemic (see "U.S. And Canadian Credit Card ABS Performance Risk Increases As Unemployment Supplements Wane ," published Aug. 6, 2020).

Our 2020 outlook for U.S. credit card ABS collateral performance is somewhat weaker, and our rating performance trend remains stable. We will continue to closely monitor the receivables performance in credit card ABS and any updates to our macroeconomic outlook to determine if any credit or liquidity pressures warrant rating actions.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research at www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Chart 1

Bankcard Performance Remains Stable

At the managed-pool level, average quarterly losses remained steady at 3.7% (see chart 2), with average 30-plus day delinquencies declining slightly to 2.0% from 2.4% quarter over quarter. The average quarterly loss rate and 30-plus day delinquencies for the securitized pools remained stable at 2.5% and 1.5% quarter over quarter, respectively. Loss rates in the six largest credit card lenders' managed pools were slightly higher than in their securitized trusts because receivables in the managed portfolio include a larger percentage of newly originated, unseasoned accounts, as well as accounts that are seasoning and are not designated to the master trusts. The managed pools correspondingly have a higher percentage of accounts with lower FICO scores than accounts designated to the master trusts.

The six bank trusts' average yield declined marginally to 18.8% from 19.7% quarter over quarter, which reflected a drop after March due to lower interchange levels from reduced spending. Excess spread correspondingly declined slightly to 13.1% from 13.9% quarter over quarter. The trusts' average payment rate declined to 27.6% from 30.5% quarter over quarter as transactors/convenience users shift their spending patterns, particularly due to the COVID-19-related restrictions on travel and leisure activities.

Chart 2

Private-Label Performance Stable As Retail Sector Faces Additional Hurdles

The three-month average loss rate for U.S. private-label CCQI receivables decreased to 4.6% in second-quarter 2020 from 5.0% in the first quarter and 5.5% in second-quarter 2019 (see table 1). The three-month average 30-plus-day delinquency rate declined to 2.6% from 3.3% in the first quarter and 3.1% in second-quarter 2019. Declines in delinquencies and loss rates reflect support from government programs and originators' temporary COVID-19-related deferment programs. Private-label credit card receivables have historically exhibited an approximately 2.0% higher default rate than general purpose bankcards. Private-label cards' lower use and lower payment priority, along with typically newer accounts and lower credit-quality obligors, among other factors, have resulted in comparatively weaker retail credit card portfolios versus bankcards.

For several years now, traditional retail has been feeling the effects of technological disruption, new competitive pressures, and evolving consumer preferences. The spread of COVID-19 has added unprecedented challenges, directly affecting retail and restaurants, as those deemed nonessential have had to temporarily close their doors. With the spike in unemployment and COVID-19-related travel restrictions, consumer spending has declined in general, with service-related and travel and leisure expenditures seeing the sharpest decline. Consequently, we expect the retail store closure trend to continue, along with more corporate credit rating downgrades and an increasing likelihood of bankruptcy among sector participants. As of July 2020, there were 16 defaults in the U.S. retail and restaurants subsectors, and 26 (rated and unrated) company bankruptcies (see "As The North American Retail And Restaurant Sector Braces For Another Wave Of Downward Rating Actions, A Few Subsectors See Signs Of Hope," published July 16, 2020).

In response to these new market dynamics, we expect a marginal increase in performance volatility in private-label credit card receivables, particularly from trusts with less diversified merchants that offer discount programs. For private-label trusts, where a card is tied to a particular merchant, store closures could decrease card utility, which can negatively affect trust performance. If a private-label credit card program were terminated because a merchant is closing, cardholders' incentive to repay their loan would likely diminish, thus potentially increasing losses.

Importantly, when establishing our base-case performance assumptions and rating category stresses, we consider multiple stress scenarios, including the loss of merchant relationships and how their performance and size could affect a pool's performance, as well as the impact of merchant bankruptcies and their receivables on a pool's performance. As such, we believe our ratings on related ABS are likely to remain stable because our base-case and stress assumptions and performance simulations account for these considerations.

Table 1

U.S. Credit Card Quality Index Performance

We observed the following performance trends in the U.S. bankcard CCQI in the second quarter (see chart 3):

• The three-month average principal receivables totaled $141.3 billion, down 24.5% year over year and 11.7% from first-quarter 2020;
• The three-month average charge-off rate was 2.5%, up 1.7% year over year and 3.3% from first-quarter 2020;
• The three-month average 30-plus-day delinquency rate was 1.5%, up 2.6% year over year and down 2.9% from first-quarter 2020;
• The three-month average total payment rate was 26.5%, down 11.4% year over year and 10.4% from first-quarter 2020;
• The three-month average yield was 18.8%, down 8.0% year over year and 5.1% from first-quarter 2020; and
• The three-month average excess spread was 13.1%, down 8.0% year over year and 5.7% from first-quarter 2020.

Chart 3

U.S. Private-Label Credit Card Receivables Performance

We observed the following performance trends in the U.S. private-label CCQI in the fourth quarter (see chart 4):

• The three-month average principal receivables totaled $33.8 billion, up 2.2% year over year and down 1.0% from first-quarter 2020;
• The three-month average charge-off rate was 4.6%, down 17.1% year over year and 8.7% from first-quarter 2020;
• The three-month average 30-plus-day delinquency rate was 2.6%, down 15.7% year over year and 19.6% from first-quarter 2020;
• The three-month average total payment rate was 18.3%, down 5.1% year over year and 6.5% from first-quarter 2020;
• The three-month average yield was 26.4%, up 0.4% year over year and down 1.7% from first-quarter 2020; and
• The three-month average excess spread was 17.8%, up 9.7% year over year and 1.4% from first-quarter 2020.

Chart 4

Also see our most recent CCQI monthly performance data, "U.S. Credit Card Quality Index: Monthly Performance--June 2020," published July 30, 2020.

Securitization Issuers Versus The Index

We track eight U.S. bankcard trusts and five private-label trusts, which comprise the U.S. Bankcard CCQI and U.S. Private-Label CCQI, respectively (see table 2).

Table 2

Pools Include High-Credit Quality Accounts

The asset quality of card securitizers' trust pools have shown significant improvement since the 2007-2008 financial crisis. Trust collateral remains highly seasoned, resulting in strong credit quality (see table 3 and charts 5-10).

Table 3

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Chart 9

Chart 10

S&P Global Ratings' Assumptions And Stresses For Securitized Bank And Retail Credit Card Programs Rating Actions

Our base-case assumptions for bank and private-label credit cards are outlined in tables 4a, 4b, and 5.

Table 4a

Table 4b

Table 5

Rating Actions

We took four rating actions in 2019 (see table 6 and "2019 U.S. And Canadian Credit Card ABS Review," published Jan. 14, 2019).

Table 6

Appendix I: Largest Six Bankcard Trusts' Performance

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Appendix II: CCQI Performance Variables

The CCQI is a monthly performance index that aggregates performance information across S&P Global Ratings' rated transactions in the following key risk areas: receivables outstanding, yield, payment rate, charge-off rate, delinquencies, base rate, and excess spread rate.

(We determine each master trust's weighting by dividing its outstanding eligible principal receivables by the total outstanding eligible principal receivables for all trusts included in the index. We then determine the CCQI weighted average performance variables by adding the result of each master trust's variables multiplied by each master trust's respective weighting.)

Receivables outstanding

The aggregate outstanding eligible principal receivables of credit card accounts backing each master trust at the end of the collection period.

Yield

The weighted average total trust income for the collection period, as a percentage of eligible principal receivables (annualized).

Total payment rate

The weighted average total monthly collections (obligor principal and finance charge payments), as a percentage of total outstandings.

Charge-off rate

The weighted average losses on principal receivables for the collection period, as a percentage of eligible principal receivables (annualized).

Delinquencies

The weighted average past-due amount for the collection period, as a percentage of the current month's eligible principal receivables.

Base rate

The weighted average cost of funding (the sum of the certificate rate on a securitization and the corresponding transaction servicing fee) for the collection period.

Excess spread rate

The weighted average surplus of cash inflow for the collection period (yield minus charge-offs minus the base rate).