DBRS Confirms the Ratings of Broadway Credit Card Trust

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

-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2004-2
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2004-2
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2004-2
-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2008-2
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2008-2
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2008-2

The rating confirmation is based on the following factors:

(1) For the AAA-rated Class A Notes, credit enhancement is available through subordination (17% for Series 2004-2 and 14% for Series 2008-2), excess spread and series-specific cash reserve accounts, which were initially seeded at 1.5% and could increase to 5% if the three-month average excess spread for the series falls below 2.5%. As the Series 2004-2 Class A Notes incorporate a fixed-floating interest rate swap to effectively convert its cost of funds to a floating rate base, this results in a higher subordination level compared with other Class A Notes but also a slightly lower cost of funds and a higher excess spread in the current low interest rate environment.

(2) For the A-rated Class B Notes, credit enhancement is available through subordination (9.45% for Series 2004-2 and 9.22% for Series 2008-2), excess spread and the series-specific cash reserve accounts.

(3) For the BBB-rated Class C Notes, credit enhancement is available through subordination (5.68% for Series 2004-2 and 4.44% for Series 2008-2), excess spread and the series-specific cash reserve accounts.

(4) The custodial pool is diversified and well seasoned.

On September 1, 2010, Citi Cards Canada, Inc. (Citi Cards) sold the custodial pool to Canadian Imperial Bank of Commerce (CIBC), which replaced Citi Cards as the seller, servicer and credit enhancer for the Trust. Citi Cards was retained by CIBC as sub-servicer during the following 12-month transition period that ended in late August 2011.

During the transition period, the gross yield level remained above 20%; however, the payment rates generally fluctuated between 16% and 22%, and the loss rates increased quickly from zero to above 10%. Now that CIBC has taken over the servicing and implemented its credit and collection policies, DBRS expects the loss rates to stabilize between 7% and 8% and the payment rates to be around 18%. The future loss rates could be lower if there is a renewed growth in the portfolio size, which has decreased by more than 20% since the sale.

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 credit card accounts in the custodial pool. Each co-ownership interest is separate from, and in addition to, co-ownership interests previously or subsequently created. CIBC, 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 credit card 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 7% for all series of Notes.

A servicing fee of 1.87% is paid to CIBC as the servicer. CIBC 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 final payment dates of the Notes, certain events may result in an obligation of the Trust to pay principal amounts owing with respect to the Notes prior to the expected final payment dates of one or more series. Such events are called amortization events. Following the occurrence of a series amortization event, collections allocable to this series will be directed first to pay Trust expenses and interest on the series notes and then to repay the outstanding principal of the most senior class of notes until it is zero. 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 cash flows generated from the receivables for principal repayments, in an amount equal to the subordination available for this class of notes.

Prior to the sale of the custodial pool to CIBC on September 1, 2010, the accounts in the custodial pool were originated by Citi Cards. After the sale, new accounts will be originated by CIBC according to its underwriting standards and, similarly, all accounts will be managed according to its credit and collection policies after the end of transition period. In order to be eligible for transfer to the custodial pool, accounts must meet certain criteria. There are also restrictions on account additions by CIBC, 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, 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 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.