DBRS Upgrades Subordinated Notes of CARDS II Trust

DBRS has today upgraded all rated classes of subordinated notes issued by CARDS II Trust (the Trust) as listed below:

-- To AA from ‘A’: Class B Notes of Series 2005-2, Series 2005-3, Series 2005-4, Series 2006-1 and Series 2006-2.
-- To ‘A’ from BBB: Class C Notes of Series 2005-2, Series 2005-3, Series 2005-4, Series 2006-1 and Series 2006-2.

On June 25, 2009, the cap on interchange available to the Trust was removed, resulting in a noticeable increase in gross yield. While loss rates remained elevated over the last two years with respect to historical experience, the increase in gross yield assisted in mitigating the increase in loss rates, which peaked at 7.28% in May 2009. The loss rates have since gradually declined to a more favourable 5.78% for the month of March 2010.

More importantly, the addition of series enhancement notes in July 2009 to provide 2.25% more support for all rated classes of notes has resulted in Class B notes with 5.18% and 6.16% enhancement for fixed-rate and floating-rate issuances, respectively, and Class C notes with 2.25% enhancement. This addition substantially increases the credit protection for rated subordinated notes, which to a large degree rely on excess spread for credit support should no series enhancement notes be available.

DBRS’s analysis shows that the rating action of Upgrade for rated subordinated notes is warranted and commensurate with DBRS stress scenarios, after consideration of the improving loss performance and the existence of 2.25% more enhancement for credit support, in addition to excess spread.

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