Managing risk and complexity for a subprime credit card portfolio

  • Client Type

    Large U.S. credit card issuer serving subprime consumers

  • Portfolio size

    1.7 million VISA/MasterCard open/active revolving consumer credit card accounts

  • The challenge

    Escalating charge-offs, regulatory challenges, and liquidity pressures

Overview

A major U.S. credit card issuer, specializing in subprime lending, faced escalating charge-offs, regulatory challenges, and liquidity pressures. As part of a broader restructuring strategy, the company sought to divest a significant portion of its high-risk receivables. Knowing that CardWorks Servicing specializes in complex portfolios, the credit card issuer knew we were the right partner for the job.

The challenge

The scale and complexity of 1.7 million open/active revolving accounts were just the beginning of the challenges we faced.

  • Escalating charge-offs on a large subprime receivables book
  • Regulatory challenges facing the issuer
  • Liquidity pressures driving a broader restructuring strategy
  • Need to divest a significant portion of high-risk receivables
  • Fullprocessor conversion was needed

Our solution

Facing this scale and complexity, CardWorks Servicing moved on several fronts at once.

  1. 01

    Rapid core system conversion

    Performed a full processing conversion and transitioned servicing for the 1.7 million-account portfolio in an unprecedented 120 days.

  2. 02

    Trust formation & servicer appointment

    After review by S&P and Moody's, and due diligence by two large investment banking firms that provided substantially all the equity investment, we were appointed Servicer and Administrator of a newly formed Trust.

  3. 03

    Liquidation rate management

    Oversaw collections performance from a month 1 annualized liquidation rate of 40.7%.

  4. 04

    Trust performance oversight

    Managed the Trust through for three years with no default or payout events.

  5. 05

    Investor return acceleration

    Structured servicing/collections performance to support early return of capital to equity participants.

The results

Our multi-prong approach translated into measurable performance gains over the life of the Trust.

  • Average annualized liquidation rates improved to 48.2%, 51.6%, and 51.9% for years one, two, and three, respectively
  • The Trust had no default or payout events while CardWorks Servicing was Servicer and Administrator
  • Equity participants received their dollar investment back within the first 2 months of their investment
  • Final principal on the original notes was paid 7 years prior to scheduled maturity