DBRS Confirms All Ratings of Master Credit Card Trust

DBRS has today confirmed all the ratings of the outstanding notes (the Notes) issued by Master 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 2006-2, Class A Notes
-- A (sf) for Series 2006-2, Class B Notes
-- BBB (sf) for Series 2006-2, Class C Notes
-- AAA (sf) for Series 2006-3, Class A Notes
-- A (sf) for Series 2006-3, Class B Notes
-- BBB (sf) for Series 2006-3, Class C Notes
-- AAA (sf) for Series 2008-1, Class A Notes
-- A (sf) for Series 2008-1, Class B Notes
-- BBB (sf) for Series 2008-1, Class C Notes
-- AAA (sf) for Series 2008-2, Class A Notes
-- A (sf) for Series 2008-2, Class B Notes
-- BBB (sf) for Series 2008-2, Class C Notes
-- AAA (sf) for Series 2008-3, Class A Floating-Rate Notes
-- A (sf) for Series 2008-3, Class B Floating-Rate Notes
-- BBB (sf) for Series 2008-3, Class C Floating-Rate Notes
-- AAA (sf) for Series 2008-4, Class A Floating-Rate Notes
-- A (sf) for Series 2008-4, Class B Floating-Rate Notes
-- BBB (sf) for Series 2008-4, Class C Floating-Rate Notes

The ratings are based on the following factors:

(1) For the AAA-rated Class A Notes, credit enhancement is available through subordination of 7.5% (for Floating-Rate Notes) or 4.5% (for Fixed-Rate Notes); excess spread, which is currently in the range of 12% to 14% for Fixed-Rate Notes*; and series-specific cash accounts, which could build up to 5% if three-month average excess spread for the series falls below 1.5%.

(2) For the A-rated Class B Notes, credit enhancement is composed of subordination of 3.75% (for Floating-Rate Notes) or 2.25% (for Fixed-Rate Notes); excess spread; and the series cash accounts.

(3) For the BBB-rated Class C Notes, credit enhancement is composed of excess spread and the series cash accounts.

(4) The performance of the Trust’s portfolio has been strong since inception and demonstrated resilience throughout the recent economic downturn. For example, over the past two years, the three-month average payment rates remained around 36%, slightly below the levels prior to the recent economic downturn. While the one-month loss rate peaked at 5.6% in February 2010, it has since been steadily decreasing and stood at 3.9% as of November 2010, one of the lowest in Canada. In addition, excess spread remained above 10% for all outstanding series, providing a solid first defence against credit losses. Currently, the gross yield is in the range of 20% to 22%.

(5) The Trust pool is a well-diversified and seasoned portfolio, composed of certain MasterCard credit card accounts originated, managed and designated by Bank of Montreal (BMO). BMO is the fourth largest bank in Canada by assets, rated AA and R-1 (high) with Stable trends by DBRS.

The Trust is structured as a Master Trust. The proceeds of the Notes are used by the Trust to purchase receivables (the Receivables) arising in accounts from MasterCard credit card products originated and maintained by BMO. Each Series of Notes is issued under a Certificate of Issuance Agreement. BMO, as the seller, retains a residual interest (Retained Interest) in the Trust pool.

The assets of the Trust 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 assets for each series are not available to the note-holders of any other series. The Retained Interest is at least 8% for all series of Notes.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to BMO as long as BMO remains as the servicer. BMO may remit collections on each distribution day with no obligation to segregate the collections from its general funds, as long as it maintains a minimum short-term rating of R-1 (low). 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 incorporated DBRS’s partial commingling policy for revolving asset pools as outlined in the Legal Criteria for Canadian Structured Finance (see Related Research below). 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.

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 amortization events. Following the occurrence of a series amortization event, collections of finance charges allocable to this series will be directed first to pay Trust expenses and interest on the notes sequentially. Principal collections allocable to this series will be directed entirely to repay outstanding principal of the Class A Notes until nil. Principal repayments of lower-ranked notes will be made only after more senior notes have been repaid in full. Essentially, this provides the more senior notes preferential access to the principal collections from the receivables, in an amount equal to the subordination available for this class of notes.

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

Because the Trust is a Master Trust, all series of Notes are supported by the same pool of receivables and though each series is issued under a separate Certificate of Issuance Agreement, are generally issued under the same requirements in respect of servicing, accumulation period, amortization 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 Trust 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.

*Excess spread for Floating-Rate Notes is not publicly disclosed by the Trust; however, it is expected to be higher as current costs of funds are lower than Fixed-Rate Notes.

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