UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 1998
Sears Credit Account Master Trust II
(Exact name of registrant as specified in charter)
Illinois 0-24776 Not Applicable
(State of (Commission (IRS Employer
Organization) File Number) Identification No.)
c/o SRFG, Inc.
3711 Kennett Pike
Greenville, Delaware 19807
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (302) 888-3176
Former name, former address and former fiscal year, if changed
since last report: Not Applicable
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Item 5. Other Events
Item 5. The following discussion and analysis of Sears, Roebuck and Co.'s
("Sears") conversion to a new credit card receivables processing system
contains forward-looking statements that involve risks and uncertainties.
The actual timing and effects of this conversion could differ materially from
those anticipated in the forward-looking statements as a result of certain
factors including, but not limited to, operational and logistical
developments with respect to the conversion and changes in social and
economic factors and credit policies that affect delinquencies, charge-offs
and customer payment behaviors. In addition, numerous other social and
economic factors and credit policies may also affect delinquency and charge-
off levels following the conversion.
In May 1998, Sears entered into an agreement with Total System
Services, Inc. to provide certain processing services relating to the Sears
domestic credit card receivables portfolio, including the receivables in the
Sears Credit Account Master Trust II (the "Trust"). The new system will
enable Sears and Sears National Bank to enhance their customer relationships
and to improve service support of Sears multiple business formats. Sears
currently plans to convert to the new processing system in three phases,
beginning with the first phase in late 1998 and ending with the last phase in
the second quarter of 1999. The new processing system will also enable Sears
to change its methodology for aging and charging off accounts. The new aging
methodology will differ from that used currently by Sears in that it will
determine delinquency levels based on the number of billing cycles that have
commenced since the customer failed to make a required payment. Under Sears
current credit system, an account is generally considered delinquent when the
past due balance is three times the scheduled minimum monthly payment. As a
result, certain accounts will generally be considered delinquent earlier and
charged off sooner than is currently the case. These changes will reflect a
reclassification of account status rather than a change in actual performance
of the account.
To assess the potential effect of the new aging methodology, Sears used
historical account activity for a 10% random sample of accounts to simulate
the differences between the current methodology and the new methodology.
Under the simulations, delinquencies as a percentage of managed receivables
at the conversion date were approximately 275 to 300 basis points higher than
under the current system. After a transition period of approximately eight
months, the change in delinquency levels decreased to approximately 200 basis
points above the levels reported under the current methodology. Based on the
simulations, Sears believes that delinquency trends over the past three years
would have been consistent under either methodology.
The simulations also modeled the gross charge-offs that would have been
reported under the new methodology based upon the actual transaction activity
of the 10% sample of accounts. Under the simulations, using historical
account activity, the percentage of account balances charged off as
uncollectible increased in the range of 75 to 100 basis points during the
eight-month period after the conversion date. The increase then declined
over the next four months. An increase in gross charge-off levels in the
range of 15 to 25 basis points remained after this twelve-month period. The
actual effect of the new aging methodology on charge-offs cannot be predicted
with precision, and may be offset in part by benefits of earlier collection
efforts due to an earlier recognition of delinquencies and improved
authorization and line management strategies.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sears Credit Account Master Trust II
(Registrant)
By: SRFG, Inc.
(Originator of the Trust)
By: \s\ Donald J. Woytek
Donald J. Woytek
Vice President, Administration
Date: May 14, 1998
