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Addition of $5B-plus Cabela's book to boost Capital One's domestic card growth

Adeal announced Oct. 3could help Capital One FinancialCorp. sustain its strong domestic card growth well into 2017.

Inits latest foray in the partnerships business, the company agreed to acquirethe credit card operation of Cabela's Inc. as part of the outdoor retailer'sannouncement of its plan to sell to rival Bass Pro Shops. The unit of Cabela'sissues Visa cards in conjunction with the retailer's "CLUB" customerloyalty program. It reported consolidated credit card loans of $5.18 billion asof June 30, according to call report data.

CapitalOne had $88.58 billion in domestic card receivables as of June 30. Theyear-over-year growth of nearly 12.2% in domestic card loans during the secondquarter represented Capital One's fifth consecutive period of double-digitexpansion. Period-end receivables have increased for nine consecutive reportingperiods year over year after Capital One effectively completed the runoff ofcertain loans from the U.S. card business of HSBC Holdings Plc that it acquired in May 2012.

Chairman,President and CEO Richard Fairbank has attributed Capital One's recentexpansion to an internal effort to seize a perceived window of opportunity. Hedownplayed Capital One's pursuit of partnership acquisitions during anappearance at aninvestor conference in June, saying that some of the "heavy-spenderproperties" the company was interested in had been "trading at somepretty celestial prices."

CapitalOne described the Cabela's transaction in an Oct. 3 as "an appealing strategicand financial opportunity" that "plays to our strengths in the retailcard partnership space." It will buy the Cabela's loans at par, less thepar value of assumed liabilities, in a transaction expected to close during thefirst half of 2017 subject to regulatory approval and the concurrent closing ofthe retailers' merger.

Datareported by Cabela's Credit Card Master Note Trust offers additional insightinto the nature of the business Capital One will take on. As of Aug. 31, thetrust reported $5.24 billion in principal receivables and $5.28 billion intotal receivables from nearly 3.2 million accounts. The 30-plus-day delinquencyrate as of Aug. 31 was 0.86%.

Thetrust has been a periodic securitizer, with its last ABS deal, the issuance of$1 billion in series 2016-I notes, closing June 29. The prospectus supplementfor that deal indicated that the accounts in the trust portfolio as of March 31had an average principal receivable balance of approximately $1,523 and anaverage credit limit of approximately $12,404. The weighted-average age of theaccounts was approximately 89 months. Of those accountholders that madepayments during March, 35.5% paid their balances in full and 7.7% submitted theminimum amount due. Customers accounting for approximately 67.6% of thereceivables in the portfolio had FICO scores of 720 and above.

Cabela'sinitiated a strategic review process in December 2015 through which it pledgedto consider a wide range of alternatives, including a possible sale of World'sForemost Bank or its assets.

Thestructure of the transaction with Capital One is similar to that of other dealsthrough which large retailers that previously issued private-label and/orco-branded cards through their own banking units sold the receivablesassociated with that business to new issuing partners.

Amongthose deals, the Cabela's portfolio may be most comparable in size to the $5.7billion book that Target Corp. sold to Toronto-Dominion Bank in March 2013. Target sold thereceivables at par in that transaction. TD also acquired the $2.2 billion card business ofNordstrom's Inc. in October 2015.

Severalother headline-making deals involving card partnerships involved the sale of aportfolio from one third-party bank to another. 's June of Costco WholesaleCorp.'s large co-branded card portfolio from the chain's previous partner,American Express Co.,represents the most noteworthy transfer of that kind in recent memory. CapitalOne employed that structure in the more distant past, including its purchasesof the $1.4 billion portfolio associated with Hudson's Bay Co. in Canada inJanuary 2011 andthe $3.7 billion Kohl's book in April 2011.

issues theBass Pro Shops Outdoor Rewards MasterCard, a product that MBNA Corp. introducedin March 2002. MBNA sold to Bank of America in January 2006. A Bass ProShops spokesman said Bank of America will continue to issue that card after themerger closes. A bank spokeswoman declined to comment on the expiration datefor the agreement with the retailer.