NEW YORK — Moody’s Investors Service placed its ratings of approximately $200 million asset-backed debt issued by Charming Shoppes Master Trust on review for possible downgrade, following several reporting errors in monthly service reports...
NEW YORK — Moody’s Investors Service placed its ratings of approximately $200 million asset-backed debt issued by Charming Shoppes Master Trust on review for possible downgrade, following several reporting errors in monthly service reports last year.
The errors came to light in the most recent annual agreed-upon procedures report by auditor Ernst & Young, dated May 26, which covered the 2002 calendar year.
“The analysis revealed several systemic servicing errors, which fell into three broad categories: reporting misstatements, noncompliance with internal credit policies and procedures, and noncompliance with the requirements of the underlying securitization documents,” said Moody’s analyst Barbara Lambotte in a statement.
Moody’s review does not extend to Charming Shoppes Inc.’s corporate debt rating. Currently, the retailer’s senior implied credit rating stands at “Ba3,” three steps into the speculative or “junk” grade, with a negative outlook.
There is no impact on the retailer’s previous financial statements from the errors. The trust securitizes credit card receivables originated by Spirit of America National Bank, a subsidiary of Charming.
“We switched processors last year and some things fell through the cracks in that conversion process,” said chief financial officer Eric Specter in a telephone interview. “We identified them, we took corrective action and believe that the errors have been substantially all corrected.”
Charming switched processing functions for its credit card business to Total Systems Services Inc. from Alliance Data Systems in February 2002. Specter said the mistakes were discovered shortly thereafter and corrected by midyear.
All amounts owed to holders of Charming’s asset-backed debt have been paid in full and on time, said Specter.
Among the mistakes pointed out by Moody’s was an understatement by as much as $10 million of the receivables held by the trust for half of the last fiscal year ended Feb. 1, which represented 3.5 percent of the total trust receivables.
“Although the problems uncovered have not resulted in investor losses to date, they do point out certain deficiencies in the oversight of Spirit’s servicing operation,” noted Moody’s Lambotte.
“Moody’s review will focus on the extent of the deficiencies, the likelihood that they might lead to future problems, and the steps that Spirit has taken and plans to take to prevent future errors,” she said.The rating agency will also take into account the findings of independent analysis from auditor Ernst & Young, contracted by Spirit, which should be completed by July 31.
Specter noted: “We increased our monitoring and compliance efforts to prevent these problems from incurring in the future. Absolutely, we were proactive with this.”
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