Asset Securitization

12 Months Ended

Jan. 28, 2012

Asset Securitization [Abstract]

Transfers and Servicing of Financial Assets [Text Block]

ASSET SECURITIZATION

Prior to the sale of our proprietary credit card receivables programs (see "NOTE 9. SALE OF PROPRIETARY CREDIT CARD RECEIVABLES PROGRAMS" above) our FASHION BUG, LANE BRYANT, CATHERINES, and PETITE SOPHISTICATE proprietary credit card receivables were originated by Spirit of America National Bank (the “Bank”), our wholly-owned credit card bank.  The Bank transferred its interest in all of the receivables associated with these programs to the Charming Shoppes Master Trust (the “Trust”) through Charming Shoppes Receivables Corp., a separate and distinct special-purpose entity.

Prior to the sale of our proprietary credit card receivables programs we accounted for the securitization of our proprietary credit card receivables as follows:

• Qualified Special-Purpose Entities ("QSPEs") sold interests in the receivables on a revolving basis for a specified term.  At the end of the revolving period, an amortization period began during which the QSPEs made principal payments to the parties that entered into the securitization agreement with the QSPEs.  All assets of the QSPEs (including the receivables) were isolated and supported the securities issued by those entities.

• We recorded gains or losses on the securitization of our proprietary credit card receivables based on the estimated fair value of the assets retained and liabilities incurred in the sale.  Gains represented the present value of the estimated cash flows that we retained over the estimated outstanding period of the receivables.  This excess cash flow essentially represented an "interest-only strip" ("I/O strip"), consisting of the present value of the finance charges and late fees in excess of the amounts paid to certificate holders, credit losses, and servicing fees.

• We used various valuation assumptions in determining the fair value of our I/O strip.  We estimated the values for these assumptions using historical data, the impact of the economic environment on the performance of the receivables sold, and the impact of the potential volatility of the market for similar instruments in assessing the fair value of the retained interests.

• In addition, we recognized a servicing liability because the servicing fees we expected to receive from the securitizations did not provide adequate compensation for servicing the receivables.  The servicing liability represented the present value of the excess of our cost of servicing over the servicing fees received and was recorded at its estimated fair value.  Because quoted market prices were generally not available for the servicing of proprietary credit card portfolios of comparable credit quality, we determined the fair value of the cost of servicing by calculating all costs associated with billing, collecting, maintaining, and providing customer service during the expected life of the securitized credit card receivable balances.  We discounted the amount of these costs in excess of the servicing fees over the estimated life of the receivables sold.The discount rate and estimated life assumptions used for the present value calculation of the servicing liability were consistent with those used for the I/O strip.

We recognized the following activity related to the I/O strip:

	Year Ended
(In thousands)	January 30, 2010(1)
Value of the I/O strip at beginning of year	$	19,298
Additions to the I/O strip	19,402
Amortization of the I/O strip	(21,925		)
Valuation adjustments	4,939
Sale of asset securitization program	(21,714		)
Value of the I/O strip at end of year	$	—

(1) Through October 30, 2009 (the date of sale of the proprietary credit card receivables programs).

We recognized the following activity related to the servicing liability:

	Year Ended
(In thousands)	January 30, 2010(1)
Value of the servicing liability at beginning of year	$	3,046
Additions to the servicing liability	2,978
Amortization of the servicing liability	(3,040		)
Sale of asset securitization program	(2,984		)
Value of the servicing liability at end of year	$	—

(1) Through October 30, 2009 (the date of sale of the proprietary credit card receivables programs).

We amortized the I/O strip and servicing liability on a straight-line basis over the expected life of the credit card receivables, which was generally less than one year.  We estimated the expected life primarily by using the historical average of principal payments as a percent of outstanding trust receivables sold.  The amortization of the servicing liability was included in selling, general, and administrative expenses in our consolidated statements of operations and comprehensive income and the value of the servicing liability was included in accrued expenses on our consolidated balance sheets.

The impact of our securitization activity on our consolidated statements of operations and comprehensive income was as follows (all items are included in selling, general, and administrative expenses):

	Year Ended
(In thousands)	January 30, 2010(1)
Gain on sale of receivables to the Trust	$	19,402
Amortization of the I/O strip	(21,925		)
Valuation adjustments of the I/O strip	4,939
Residual cash flow earned related to I/O interest(2)	68,326
Additions to the servicing liability	(2,978		)
Amortization of the servicing liability	3,040
Decrease in selling, general, and administrative expenses	$	70,804

(1) Through October 30, 2009 (the date of sale of the proprietary credit card receivables programs).

(2) Includes servicing fees of $7,228.

The cash flow related to our sale of the receivables to the Trust, the activity related to amortization and valuation adjustments to the I/O Strip and servicing liability, and the activity related to the excess spread revenues have been treated as operating cash flows.  These activities have been included in net cash provided by operating activities on the consolidated statements of cash flows.

Our sales of certificates issued by the Trust, which have been reported as investing cash flows, were as follows:

	Year Ended
(In thousands)	January 30, 2010(1)
Sales of certificates issued by the Trust	$	51,400

(1) Through October 30, 2009 (the date of sale of the proprietary credit card receivables programs).

The following table presents additional information relating to the receivables in our Trust prior to the sale of the credit card portfolio:

	Year Ended
(In thousands)	January 30, 2010(1)
Proceeds from sales of new receivables to QSPE	$	530,544
Collections reinvested in revolving-period securitizations	674,185
Cash flows received on retained interests	68,326
Servicing fees received	7,228
Net credit losses	37,035

(1) Through October 30, 2009 (the date of sale of the proprietary credit card receivables programs).

We were the servicer of the receivables transferred to the QSPEs and we received a servicing fee of approximately 2% of the investor interest.  We held certificates and retained interests in our securitizations (see below), which were sold to Alliance Data in connection with the sale of our proprietary credit card receivables programs (see “NOTE 9.  SALE OF PROPRIETARY CREDIT CARD RECEIVABLES PROGRAMS” above).

The key assumptions used to value our retained interest were as follows:

	October 30, 2009(1)
Payment rate	11.2	%	-	13.8	%
Residual cash flows discount rate	15.5	%	-	16.5	%
Net credit loss percentage	7.3	%	-	12.0	%
Average life of receivables sold (years)	0.6		-	0.7

(1) The date of sale of the proprietary credit card receivables programs.

CSRC and Charming Shoppes Seller, Inc., our consolidated wholly-owned indirect subsidiaries, were separate special-purpose entities (“SPEs”) created for the securitization program.  Our investment in asset-backed securities, which were 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, consisted of the following:

(In thousands)	October 30, 2009(1)
Trading securities:
I/O strip	$	21,714
Retained interest (primarily collateralized cash)	63,683
Available-for-sale securities:
Ownership interest	51,250
Investment in asset-backed securities	$	136,647

(1) The date of sale of the proprietary credit card receivables programs.