Reducing Our Fair Value Estimate for Bread Financial as New Late Fee Rules Create Risk

We are reducing our fair value estimate for Bread Financial from $50 per share to $44, as we incorporate a higher chance that the Consumer Financial Protection Bureau’s new rules on credit card late fee limits are implemented as proposed. These new rules would limit late fees to $8 dollars per violation from the current $30 for first time offenses and $41 for additional missed payments. While these rules will impact all the card issuers in our coverage, Bread is particularly vulnerable to these changes due to its unusually weak credit quality and high reliance on late fee income.