DBRS Finalizes Ratings of AAA (sf) and BBB (sf) on CARDS II Trust, Series 2012-4

DBRS has today finalized the provisional ratings on the Credit Card Receivables-Backed Floating Rate Notes, Series 2012-4 (the Notes) issued by CARDS II Trust (the Trust) as follows:

-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2012-4 (the Class A Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2012-4 (the Class B Notes)

The Class A Notes and Class B Notes are denominated in U.S. dollars and Canadian dollars, respectively. A cross-currency, interest rate swap is in place for the Class A Notes.

The targeted principal distribution date of the Notes is September 15, 2014.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement is available through subordination of 6.5%, excess spread and the series-specific cash reserve account, which could build up to 5% of the initial invested amount.

(2) For the Class B Notes, credit enhancement is available through excess spread and the series-specific cash reserve account.

(3) Since 2008, three-month average payment rates remained strong, at above 35%. While the one-month loss rate peaked at 7.3% in May 2009, loss rates and delinquencies have declined and stabilized, with the three-month average loss rate at 4.4% as of June 2012. The removal of the 2% cap on interchange fees on June 25, 2009, also helped mitigate the impact of the increase in loss rates prior to May 2009 and increased the protection for the investors.

(4) The custodial pool is a well-diversified, seasoned portfolio and is the largest in Canada.

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 in repaying 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 Canadian Imperial Bank of Commerce (CIBC) as long as CIBC remains the servicer. CIBC may remit collections on each transfer date or reporting day in accordance with the terms of the Series 2012-4 remittance notice, 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 collections 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 participates in a co-ownership structure, all series of notes issued by the Trust 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. 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 rating on the following outstanding rated notes of the Trust:

-- AAA (sf) on Credit Card Receivables-Backed Class A Floating Rate Notes, Series 2005-2
-- AA (sf) on Credit Card Receivables-Backed Class B Floating Rate Notes, Series 2005-2
-- A (sf) on Credit Card Receivables-Backed Class C Floating Rate Notes, Series 2005-2
-- AAA (sf) on Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2006-1
-- AA (sf) on Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2006-1
-- A (sf) on Credit Card Receivables-Backed Floating Rate Class C Notes, Series 2006-1
-- AAA (sf) on Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2006-2
-- AA (sf) on Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2006-2
-- A (sf) on Credit Card Receivables-Backed Floating Rate Class C Notes, Series 2006-2
-- AAA (sf) on Credit Card Receivables-Backed Class A Notes, Series 2010-2
-- BBB (sf) on Credit Card Receivables-Backed Class B Notes, Series 2010-2
-- AAA (sf) on Credit Card Receivables-Backed Class A Medium Term Notes, Series 2010-3
-- BBB (sf) on Credit Card Receivables-Backed Class B Medium Term Notes, Series 2010-3
-- AAA (sf) on Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2011-3
-- BBB (sf) on Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2011-3
-- AAA (sf) on Credit Card Receivables-Backed Class A Medium Term Notes, Series 2011-4
-- BBB (sf) on Credit Card Receivables-Backed Class B Medium Term Notes, Series 2011-4
-- AAA (sf) on Credit Card Receivables-Backed Class A Floating Rate Notes, Series 2012-1
-- BBB (sf) on Credit Card Receivables-Backed Class B Floating Rate Notes, Series 2012-1
-- AAA (sf) on Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2012-2
-- BBB (sf) on Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2012-2
-- AAA (sf) on Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2012-3
-- BBB (sf) on Credit Card Receivables-Backed Floating Rate Class B Notes, Series 2012-3

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

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.