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These excerpts taken from the CHRS 10-K filed Apr 2, 2008. OVERVIEW” above).
On
October 17, 2007 the Trust issued $320 million of five-year asset-backed
certificates (“Series 2007-1”) in a private placement under Rule
144A. Of the $320 million of certificates issued, $289.6 million were
sold to investors, and CSRC held $30.4 million as a retained
interest. CSRC may in the future sell all or a portion of such
retained interest. Of the certificates sold to investors, $203.5
million pay interest on a floating rate basis tied to one-month LIBOR while the
remaining $86.1 million of certificates were issued at fixed
rates. The Trust used $35.0 million of the proceeds to fund
receivables and to pay down other securitization series and placed the remaining
proceeds of $285.0 million into a pre-funding cash account.
Concurrent
with the issuance of Series 2007-1, the Trust entered into a series of
fixed-rate interest-rate swap agreements with respect to $174.7 million of the
floating-rate certificates sold to investors. The notional value of
these swaps equals the face value of these certificates in excess of the
certificate’s pro-rata share of the outstanding pre-funding cash account at any
measurement date. The blended weighted-average interest rate on the
swapped certificates is 6.39%. The Trust also acquired an
interest-rate cap with respect to $28.8 million of floating-rate certificates
sold to investors. The cap counterparty will make payments to the
Trust when one-month LIBOR exceeds 10%. The fixed-rate certificates
were sold at a discount and carry a blended weighted average-yield of 6.43% and
a blended weighted average coupon of 6.34%.
The Trust
paid for its acquisition of the LANE BRYANT proprietary credit card
accounts receivable balances primarily by withdrawing $227.5 million of
proceeds from the pre-funding cash account for the Series 2007-1
Certificates. The remainder of the funds in the pre-funding cash
account will provide financing for additional receivables, including receivables
made available for financing by the amortization of the Series 2002-1
certificates issued by the Trust. Series 2002-1 has been in
amortization since July 2007 and we currently expect it to be repaid in full by
May 2008.
During
Fiscal 2006 Catalog Receivables LLC closed on a dedicated conduit credit card
securitization facility that provides funding of up to $55.0 million on a
discounted basis for a term of one year, subject to an annual
renewal. As of February 2, 2008 we had $41.5 million of credit card
receivables funded under this facility. We renewed this facility
during Fiscal 2008 on its renewal date, and expect to renew the facility during
Fiscal 2009 on its renewal date.
We
securitized $939.9 million of credit card receivables in Fiscal 2008 and $619.6
million of credit card receivables in Fiscal 2007, and had $610.7 million of
securitized credit card receivables outstanding as of February 2,
2008. We held certificates and retained interests in our
securitizations of $115.9 million as of February 2, 2008 that are generally
subordinated in right of payment to certificates issued by the QSPEs to
third-party investors. Our obligation to repurchase receivables sold
to the QSPEs is limited to those receivables that at the time of their transfer
fail to meet the QSPE’s eligibility standards under normal representations and
warranties. To date, our repurchases of receivables pursuant to this
obligation have been insignificant.
CSRC,
Charming Shoppes Seller, Inc., and Catalog Seller LLC, our consolidated wholly
owned indirect subsidiaries, are separate special-purpose entities (“SPEs”)
created for the securitization program. Our investment in
asset-backed securities as of February 2, 2008 included $51.7 million of QSPE
certificates, an interest-only (“I/O”) strip of $23.3 million, and other
retained interests of $40.9 million. These assets are first and
foremost available to satisfy the claims of the respective creditors of these
separate corporate entities, including certain claims of investors in the
QSPEs.
Additionally,
with respect to certain Trust Certificates, if either the Trust or Charming
Shoppes, Inc. does not meet certain financial performance standards, the Trust
is obligated to reallocate to third-party investors holding certain certificates
issued by the Trust, collections in an amount up to $9.45 million that otherwise
would be available to CSRC. The result of this reallocation is to
increase CSRC’s retained interest in the Trust by the same amount, with the
third-party investor retaining an economic interest in the
certificates. Subsequent to such a transfer occurring, and upon
certain conditions being met, these same investors are required to repurchase
these interests when the financial performance standards are again
satisfied. Our net loss for the third quarter of Fiscal 2008 resulted
in the requirement to begin the reallocation of collections as discussed above
and $9.45 million of collections were fully transferred as of February 2,
2008. The requirement for the reallocation of these collections will
cease and such investors would be required to repurchase such interests upon our
announcement of a quarter with net income and the fulfillment of such
conditions. The Trust was in compliance with its financial
performance standards as of February 2, 2008.
In
addition to the above, we could be affected by certain other events that would
cause the QSPEs to hold proceeds of receivables, which would otherwise be
available to be paid to us with respect to our subordinated interests, within
the QSPEs as additional enhancement. For example, if we or the QSPEs
do not meet certain financial performance standards, a credit enhancement
condition would occur and the QSPEs would be required to retain amounts
otherwise payable to us. In addition, the failure to satisfy certain
financial performance standards could further cause the QSPEs to stop using
collections on QSPE assets to purchase new receivables and would require such
collections to be used to repay investors on a prescribed basis as provided in
the securitization agreements. If this were to occur, it could result
in our having insufficient liquidity; however, we believe we would have
sufficient notice to seek alternative forms of financing through other
third-party providers although we cannot provide assurance in that
regard. As of February 2, 2008 we and the QSPEs were in
compliance with the applicable financial performance standards referred to in
this paragraph.
Amounts
placed into enhancement accounts, if any, that are not required for payment to
other certificate holders will be available to us at the termination of the
securitization series. We have no obligation to directly fund the
enhancement account of the QSPEs, other than for breaches of customary
representations, warranties, and covenants and for customary
indemnities. These representations, warranties, covenants, and
indemnities do not protect the QSPEs or investors in the QSPEs against
credit-related losses on the receivables. The providers of the credit
enhancements and QSPE investors have no other recourse to us.
As these
credit card receivables securitizations reach maturity, we plan to obtain
funding for our proprietary credit card programs through additional
securitizations, including annual renewal of our conduit
facilities. However, we can give no assurance that we will be
successful in securing financing through either replacement securitizations or
other sources of replacement financing.
These
securitization agreements are intended to improve our overall liquidity by
providing sources of funding for our proprietary credit card
receivables. The agreements provide that we will continue to service
the credit card receivables and control credit policies. This control
allows us, absent certain adverse events, to fund continued credit card
receivable growth and to provide the appropriate customer service and collection
activities. Accordingly, our relationship with our credit card
customers is not affected by these agreements.
OVERVIEW” above). On October 17, 2007 the Trust issued $320 million of five-year asset-backed certificates (“Series 2007-1”) in a private placement under Rule 144A. Of the $320 million of certificates issued, $289.6 million were sold to investors, and CSRC held $30.4 million as a retained interest. CSRC may in the future sell all or a portion of such retained interest. Of the certificates sold to investors, $203.5 million pay interest on a floating rate basis tied to one-month LIBOR while the remaining $86.1 million of certificates were issued at fixed rates. The Trust used $35.0 million of the proceeds to fund receivables and to pay down other securitization series and placed the remaining proceeds of $285.0 million into a pre-funding cash account. Concurrent with the issuance of Series 2007-1, the Trust entered into a series of fixed-rate interest-rate swap agreements with respect to $174.7 million of the floating-rate certificates sold to investors. The notional value of these swaps equals the face value of these certificates in excess of the certificate’s pro-rata share of the outstanding pre-funding cash account at any measurement date. The blended weighted-average interest rate on the swapped certificates is 6.39%. The Trust also acquired an interest-rate cap with respect to $28.8 million of floating-rate certificates sold to investors. The cap counterparty will make payments to the Trust when one-month LIBOR exceeds 10%. The fixed-rate certificates were sold at a discount and carry a blended weighted average-yield of 6.43% and a blended weighted average coupon of 6.34%. The Trust paid for its acquisition of the LANE BRYANT proprietary credit card accounts receivable balances primarily by withdrawing $227.5 million of proceeds from the pre-funding cash account for the Series 2007-1 Certificates. The remainder of the funds in the pre-funding cash account will provide financing for additional receivables, including receivables made available for financing by the amortization of the Series 2002-1 certificates issued by the Trust. Series 2002-1 has been in amortization since July 2007 and we currently expect it to be repaid in full by May 2008. During Fiscal 2006 Catalog Receivables LLC closed on a dedicated conduit credit card securitization facility that provides funding of up to $55.0 million on a discounted basis for a term of one year, subject to an annual renewal. As of February 2, 2008 we had $41.5 million of credit card receivables funded under this facility. We renewed this facility during Fiscal 2008 on its renewal date, and expect to renew the facility during Fiscal 2009 on its renewal date. We securitized $939.9 million of credit card receivables in Fiscal 2008 and $619.6 million of credit card receivables in Fiscal 2007, and had $610.7 million of securitized credit card receivables outstanding as of February 2, 2008. We held certificates and retained interests in our securitizations of $115.9 million as of February 2, 2008 that are generally subordinated in right of payment to certificates issued by the QSPEs to third-party investors. Our obligation to repurchase receivables sold to the QSPEs is limited to those receivables that at the time of their transfer fail to meet the QSPE’s eligibility standards under normal representations and warranties. To date, our repurchases of receivables pursuant to this obligation have been insignificant. CSRC, Charming Shoppes Seller, Inc., and Catalog Seller LLC, our consolidated wholly owned indirect subsidiaries, are separate special-purpose entities (“SPEs”) created for the securitization program. Our investment in asset-backed securities as of February 2, 2008 included $51.7 million of QSPE certificates, an interest-only (“I/O”) strip of $23.3 million, and other retained interests of $40.9 million. These assets are first and foremost available to satisfy the claims of the respective creditors of these separate corporate entities, including certain claims of investors in the QSPEs. Additionally, with respect to certain Trust Certificates, if either the Trust or Charming Shoppes, Inc. does not meet certain financial performance standards, the Trust is obligated to reallocate to third-party investors holding certain certificates issued by the Trust, collections in an amount up to $9.45 million that otherwise would be available to CSRC. The result of this reallocation is to increase CSRC’s retained interest in the Trust by the same amount, with the third-party investor retaining an economic interest in the certificates. Subsequent to such a transfer occurring, and upon certain conditions being met, these same investors are required to repurchase these interests when the financial performance standards are again satisfied. Our net loss for the third quarter of Fiscal 2008 resulted in the requirement to begin the reallocation of collections as discussed above and $9.45 million of collections were fully transferred as of February 2, 2008. The requirement for the reallocation of these collections will cease and such investors would be required to repurchase such interests upon our announcement of a quarter with net income and the fulfillment of such conditions. The Trust was in compliance with its financial performance standards as of February 2, 2008. In addition to the above, we could be affected by certain other events that would cause the QSPEs to hold proceeds of receivables, which would otherwise be available to be paid to us with respect to our subordinated interests, within the QSPEs as additional enhancement. For example, if we or the QSPEs do not meet certain financial performance standards, a credit enhancement condition would occur and the QSPEs would be required to retain amounts otherwise payable to us. In addition, the failure to satisfy certain financial performance standards could further cause the QSPEs to stop using collections on QSPE assets to purchase new receivables and would require such collections to be used to repay investors on a prescribed basis as provided in the securitization agreements. If this were to occur, it could result in our having insufficient liquidity; however, we believe we would have sufficient notice to seek alternative forms of financing through other third-party providers although we cannot provide assurance in that regard. As of February 2, 2008 we and the QSPEs were in compliance with the applicable financial performance standards referred to in this paragraph. Amounts placed into enhancement accounts, if any, that are not required for payment to other certificate holders will be available to us at the termination of the securitization series. We have no obligation to directly fund the enhancement account of the QSPEs, other than for breaches of customary representations, warranties, and covenants and for customary indemnities. These representations, warranties, covenants, and indemnities do not protect the QSPEs or investors in the QSPEs against credit-related losses on the receivables. The providers of the credit enhancements and QSPE investors have no other recourse to us. As these credit card receivables securitizations reach maturity, we plan to obtain funding for our proprietary credit card programs through additional securitizations, including annual renewal of our conduit facilities. However, we can give no assurance that we will be successful in securing financing through either replacement securitizations or other sources of replacement financing. These securitization agreements are intended to improve our overall liquidity by providing sources of funding for our proprietary credit card receivables. The agreements provide that we will continue to service the credit card receivables and control credit policies. This control allows us, absent certain adverse events, to fund continued credit card receivable growth and to provide the appropriate customer service and collection activities. Accordingly, our relationship with our credit card customers is not affected by these agreements. | EXCERPTS ON THIS PAGE:
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