DBRS Confirms All Ratings of Gloucester Credit Card Trust

DBRS has today confirmed all the ratings of the outstanding notes (the Notes) issued by Gloucester Credit Card Trust (the Trust). The confirmations are part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants:

-- AAA (sf) for Series 2004-1, Class A Notes
-- BBB (sf) for Series 2004-1, Collateral Notes
-- AAA (sf) for Series 2006-1, Class A Notes
-- BBB (sf) for Series 2006-1, Collateral Notes
-- AAA (sf) for Series 2006-2, Class A Notes
-- BBB (sf) for Series 2006-2, Collateral Notes
-- AA (sf) for Series 2008-1, Class A Notes
-- BBB (sf) for Series 2008-1, Collateral Notes

The ratings are based on the following factors:

(1) For the AAA-rated Class A Notes, credit enhancement is available through subordination (15.5% for Series 2004-1 and Series 2006-1; 14.0% for Series 2006-2) and excess spread, which is currently in the range of 6% to 7%, close to the first threshold of 6.5% for a spread account increase in respect of the Collateral Notes. For the AA-rated Class A Notes (Series 2008-1), credit enhancement is available through 11.5% subordination and excess spread. Series 2008-1 does not utilize a fixed-floating interest rate swap to effectively convert the Class A cost of funds to a floating-rate basis, resulting in lower subordination compared to the other Class A Notes of the Trust and currently higher costs of funds and lower excess spread (2.7% for the three-months ended December 2010), which is the lowest three-month average excess spread percentage in Canada amongst credit card securitization programs.

(2) For the BBB-rated Collateral Notes, credit enhancement is composed of excess spread and series-specific spread accounts, each with an initial deposited amount of 1.25% (in the case of Series 2004-1, 2006-1 and 2006-2), or 0.50% (in the case of Series 2008-1)_of the initial series amount and can build up to 6% if the three-month average excess spread for the series falls below 2.0%. The amount in the Series 2008-1 spread account has increased over time due to the compressed excess spread for the series and was slightly below the required amount of 5% of the initial series amount as of December 2010, since the three-month average excess spread for the three months ended December 2010 was 2.7%.

(3) Although the one-month gross loss rates (before recoveries) remain elevated compared with the levels prior to the recent economic downturn, they have moderated from the peak of 7.0% in December 2009 and stood at 6.3% as of December 2010. In spite of declines in 2008 and 2009 to around 12%, payment rates are now gradually increasing to the levels prior to the recent economic downturn. In addition, portfolio yield remained stable in the range of 16% to 18% over the past two years.

(4) The custodial pool is a well-diversified and relatively seasoned portfolio, composed of certain MasterCard credit card accounts originated, managed and designated by MBNA Canada Bank (MBNA). FIA Card Services, N.A. (FIA), an affiliate of Bank of America Corporation, provides a performance guarantee with respect to the obligations of MBNA under certain transaction agreements. FIA is one of the largest issuers of credit cards worldwide and is rated A (high) with a Stable trend by DBRS.

The Trust participates in a co-ownership structure, which means the proceeds from each series of Notes were used to purchase an undivided co-ownership interest in the receivables of the designated accounts in the custodial pool. Each co-ownership interest is separate from and in addition to co-ownership interests previously created. MBNA, as the seller, retains the residual undivided co-ownership interest (Retained Interest) in the custodial pool. The receivables include all amounts to be collected under the designated accounts, such as finance charges, cash advance fees, annual fees and principal amounts billed to cardholders, as well as interchange. The Retained Interest is at least 5% of the average principal receivables.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to MBNA as long as MBNA remains as the servicer. In terms of collection remittance, if MBNA is the servicer, MBNA need not make the daily deposits into the Trust accounts until immediately prior to each distribution day, as long as MBNA maintains a minimum short-term rating of R-1 (low) and a Pay Out Event (as defined in the pooling and servicing agreement) has not occurred. If the servicer fails to maintain this rating, remittance of collections to the account in the name of the Custodian will be required within two business days of processing. The Trust has not yet incorporated DBRS’s partial commingling policy for revolving asset pools as outlined in the Legal Criteria for Canadian Structured Finance (see Related Research below). While DBRS believes that the partial commingling provisions mitigate potential losses to the noteholders and also provide clarification to market participants with respect to the collection process if the seller/servicer is financially weakened, the non-existence of these provisions for the Notes is not considered detrimental to the ratings, given the current financial strength of FIA and Bank of America. Nevertheless, DBRS expects the partial commingling provisions to be included in the transaction agreements prior to any new issuance by the Trust.

Notwithstanding the stated expected principal payment dates of the Notes, certain events may result in early repayment or delays of one or more series. Such events are called Pay Out Events. Following the occurrence of a Pay Out Event, collections allocable to a series will be directed first to pay Trust expenses and interest on the series notes sequentially, and then to repay outstanding principal of the Class A Notes until nil. Principal repayments of the Collateral Notes will be made only after the Class A Notes have been repaid in full. Essentially, this provides the Class A Notes preferential access to the cash flows generated from the receivables for principal repayments, in an amount equal to the principal balance of the Collateral Notes.

The accounts in the custodial pool are originated and serviced by MBNA, as seller and servicer, according to its underwriting standards and credit and collection policies. In order to be eligible for transfer to the custodial pool, accounts must meet certain criteria. There are also restrictions on account additions by MBNA, as seller, to ensure consistent credit quality of the custodial pool.

As the Trust participates in a co-ownership structure, all series of Notes are supported by the same pool of receivables and generally issued under the same requirements in respect of servicing, accumulation period, Pay Out Events, priority of distributions and eligible investments. However, these requirements may be series specific. For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

The performance and characteristics of the custodial pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research below). DBRS conducts monthly stress testing of each rated class of the Notes and the results indicate that simultaneous declines in yield and payment rates and increases in losses would not result in a failure of the Trust in repaying the Notes on a timely basis. The severity of the tests applied is commensurate with the respective ratings of the Notes.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are DBRS Criteria for Canadian Credit Card Securitization, Legal Criteria for Canadian Structured Finance and Swap Criteria for Canadian Structured Finance Transactions, which are available on our website under Methodologies.