DBRS Confirms All Ratings of Algonquin Credit Card Trust

DBRS has today confirmed all the public, outstanding rated notes (the Notes) issued by Algonquin Credit Card Trust (the Trust) upon the issuance of Series 2011-1 notes as follows:

– AAA (sf) for Series 2006-1, Class A Notes
– A (sf) for Series 2006-1, Class B Notes
– BBB (sf) for Series 2006-1, Class C Notes
– AAA (sf) for Series 2007-1, Class A Notes
– A (sf) for Series 2007-1, Class B Notes
– BBB (sf) for Series 2007-1, Class C Notes

The Series 2011-1 notes, which are unrated, have three classes (Class A, Class B and Class C), an expected maturity date in June 2012 and a nominal amount of $1 billion.

The rating confirmation is based on the following factors:

(1) For the AAA-rated Class A Notes, credit enhancement is available through subordination of 20.5% and excess spread.

(2) For the A-rated Class B Notes, credit enhancement is available through subordination of 10.5% and excess spread.

(3) For the BBB-rated Class C Notes, credit enhancement is composed of excess spread and a series-specific spread account, with an initial required amount of 2.5% of the total series amount and can build up to 6% if three-month average excess spread for the series falls below 2%.

(4) The portfolio’s yield and payment rate demonstrated resilience throughout the recent economic downturn, remaining close to the historical levels around 20% and 10%, respectively. Although the one-month loss rate reached a peak of 9.3% in October 2009, it has since been steadily decreasing and stood at 5.8% as of April 2011.

(5) The custodial pool is a well-diversified and relatively seasoned portfolio, composed of certain MasterCard credit card accounts originated, managed and designated by Capital One Bank (Canada Branch). Capital One Bank is one of the largest credit card issuers in the world and rated A (low) and R-1 (low) with Stable trends by DBRS.

DBRS notes that 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 Capital One Bank.

As 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, all series of notes issued by the Trust are supported by the same pool of receivables and generally issued under similar (if not the same) requirements in respect of servicing, accumulation period, amortization events, priority of distributions and eligible investments. 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 and Legal Criteria for Canadian Structured Finance, which are available on our website under Methodologies.