DBRS Downgrades Gloucester Credit Card Trust, Series 2008-1 Class A Notes to AA and Confirms Series 2008-1 Collateral Notes at BBB

DBRS has today downgraded the rating of the Series 2008-1 Class A Notes issued by Gloucester Credit Card Trust (Gloucester) from AAA to AA, confirmed the rating of the Series 2008-1 Collateral Notes at BBB (collectively, the Series 2008-1 Notes) and removed the Series 2008-1 Notes from Under Review with Negative Implications, where they were placed on April 3, 2009.

The ratings of all other series of notes issued by Gloucester are unaffected by today’s rating action.

DBRS notes that the loss rate in the securitized pool of credit card receivables supporting Gloucester has increased by over 50% over the last 12 months, reaching 5.97% at the end of September 2009. While appearing to stabilize, portfolio credit losses remain elevated compared with historical experience. Furthermore, unlike other series of notes with fixed coupon rates issued by Gloucester, the Series 2008-1 Class A Notes do not benefit from a fixed-floating interest rate swap to effectively convert the cost of funds to a floating rate base. This resulted in the Series 2008-1 Notes experiencing higher costs of funds compared with other series of Gloucester notes and a compressed three-month average excess spread of 2.65% at the end of September 2009. In spite of relatively stable payment rates and gross yield over time, DBRS has revised its expectations in light of the recent loss performance and determined that current subordination of 11.5% for the Series 2008-1 Class A Notes can only warrant a AA rating.

In reviewing the Series 2008-1 Notes, DBRS noted that increasing loss rates and compressed excess spread have less influence on the rating of the Series 2008-1 Collateral Notes, as the spread accounts of Gloucester are structured exclusively for the support of the collateral notes and are series specific. The spread account of Series 2008-1 is in the process of accumulating excess funds from 0.5% of the initial co-owner amount at issuance to the current required percentage of 5% to mitigate deteriorating excess spread. Furthermore, no withdrawals from the spread account have been required by Gloucester to cover distributions in respect of the Series 2008-1 Collateral Notes so far. Therefore, no rating action is being taken for the Series 2008-1 Collateral Notes at this time.

In the absence of a significant improvement in portfolio performance in the near future or substantial changes in Series 2008-1 transaction structure to increase the credit support, DBRS considers that a rating of AA is appropriate for the Series 2008-1 Class A Notes at this point.

DBRS continues to monitor the credit quality of the underlying assets and will provide further information as appropriate.

Notes:
The applicable methodology is DBRS Criteria for Canadian Credit Card Securitization, which can be found on our website under Methodologies.

This is a Structured Finance rating.

Media Contact
Caroline Creighton
Senior Vice President
Communications
Tel. +1 416 597 7317
ccreighton@dbrs.com