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

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

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

The Notes have an Expected Final Payment Date of April 24, 2015.

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 33% as of March 31, 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% (three-month average) as of March 31, 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.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to National Bank of Canada (NBC) as long as NBC remains the servicer. NBC may remit collections as required to the collection account 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 collection 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. 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.

As the Trust is structured as a master trust, all series of notes are supported by the same pool of receivables and are generally issued under the same requirements with respect to servicing, accumulation period, amortization events, priority of distributions and eligible investments. The performance and characteristics of the custodial pool are available and updated each month in the Monthly Canadian ABS Report prepared by DBRS. DBRS conducts a monthly stress testing of each rated class, with the severity of the tests applied commensurate with the respective ratings assigned. In conjunction with the issuance of the Notes, DBRS has also confirmed the following outstanding notes of the Trust:

-- AAA (sf) for Class A Credit Card-Backed Investor Certificates, Series 2008-1
-- “A” (sf) for Class B Credit Card-Backed Investor Certificates, Series 2008-1
-- BBB (sf) for Class C Credit Card-Backed Investor Certificates, Series 2008-1
-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2010-1
-- “A” (sf) for Credit Card Receivables-Backed Class B Notes, Series 2010-1
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2010-1

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.