DBRS Assigns Provisional Ratings of AAA (sf), “A” (sf) and BBB (sf) to Canadian Credit Card Trust, Series 2012-1

DBRS has today assigned provisional ratings to the Credit Card Receivables-Backed Notes, Series 2012-1 (the Notes) to be issued by Canadian Credit Card Trust (the Trust) as indicated below:

– AAA (sf) to the Credit Card Receivables-Backed Class A Notes, Series 2012-1 (the Class A Notes)
– “A” (sf) to the Credit Card Receivables-Backed Class B Notes, Series 2012-1 (the Class B Notes)
– BBB (sf) to the Credit Card Receivables-Backed Class C Notes, Series 2012-1 (the Class C Notes)

The finalization of the ratings is contingent upon receipt of final documents conforming to information already received.

The ratings are based on the following factors:

(1) Credit support provided by subordination of 6.25% and 2.75% for the Class A Notes and Class B Notes, respectively; excess spread; and the cash collateral account, which could build up to 5%.

(2) Over the past two years, three-month average payment rates have increased, from 29% to 34% as of February 29, 2012. Gross yields also remained stable over the same period, averaging 22%.

(3) The custodial pool is well seasoned, with approximately 64% of the receivables arising from accounts greater than 84 months old.

The portfolio is largely concentrated in Québec, which is both positive and negative. From a positive perspective, the portfolio has been more insulated from the competition than the rest of Canada. Notwithstanding the relative insulation, three-month average loss rates increased from 3.8% to a peak of 6.5% between 2008 and 2009, similar to the experience of the entire Canadian credit card industry. The loss level has since come back down to pre-recessionary levels and was 4.5% as of February 29, 2012. This is further mitigated by increasing payment rates, stable portfolio yields and declining delinquencies. From a negative perspective, there is considerably more geographic and regional economic risk stemming from the portfolio’s concentration in Québec.

The subordination for the Class A Notes is 0.75% higher than the 5.50% available to Series 2008-1 Class A certificates and is the same as that available to the Series 2010-1 Class A Notes. Furthermore, to provide additional support for the Class C Notes, which only have excess spread as credit support, the 2012-1 series reserve account will begin trapping excess spread if the three-month average excess spread drops below 6%, similar to Series 2010-1. This threshold is 2% higher than the 4% for Series 2008-1.

DBRS stress testing indicates that simultaneous declines in yield and payment rates and increases in losses would not result in a failure of the Trust to repay the Notes on a timely basis. The severity of the tests applied is commensurate with the respective ratings of the Notes.

DBRS’s partial commingling policy for revolving asset pools has been incorporated for the Trust. 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.

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

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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.