DBRS Comments on Stable Performance of Canadian Credit Cards in Q3 2012

DBRS has today published the Canadian Credit Card Performance Index (the Index) for Q3 2012. Key performance metrics, as measured by DBRS, continue to show stability or moderate improvement.

Highlights observed in this quarter include:

-- Average loss rates continued their downward trend and ended at 4.0%. This improvement, helped by stable employment, is a decline of 28 basis points (bps) year-over-year. On a quarterly basis, average loss rates fell by approximately 27 bps.

-- Average payment rates remained stable year-over-year and ended at 34.6%, a 0.2% increase. However, on a quarterly basis, the average payment rate fell by approximately 2.8%. The range in the payment rate remains large.

-- Average gross yield levels saw a slight drop of approximately 20 bps year-over-year and 26 bps quarter-over-quarter, ending at 21.5%.

-- Average excess spread reached a historic high of 14.1% due to improving loss rates, closing at 13.4%. This is an improvement of approximately 48 bps year-over-year.

Issuance remains strong in 2012, with year-to-date issuance reaching a record $7.1 billion (Canadian-dollar equivalent). The amount of issuance in U.S. dollars for the quarter was USD 2.2 billion, as several issuers took advantage of lower funding costs in U.S. dollars, after interest rate and/or currency swaps. The active issuance in this quarter caused a larger percentage of the custodial pool to be securitized, reaching 58.5%. This compares to 56.5% in Q2 2012 and a low of 26.8% in February 2001.

Total outstanding Canadian credit card notes increased from $22.9 billion last quarter to $23.7 billion in Q3 2012, with the aggregate custodial pool remaining flat quarter-over-quarter at $40.5 billion. The new issuance this quarter was moderated by the repayment of $1 billion by CARDS II Trust and $1.1 billion by Master Credit Card Trust.

Credit card notes continue to dominate the overall Canadian securitization market, accounting for 35.1% of the total outstanding securitization market in the third quarter of 2012, compared to 34.2% in the previous quarter.

The Index has been recently improved to include pool balance, debt balance, payment rate, gross yield and net loss rate at the trust level. The Index is published quarterly and provides data on key performance metrics, including gross yield, loss rate, payment rate, delinquencies and excess spread. To be consistent with other metrics, excess spread is also reported at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series. All securitization transactions rated by DBRS that are funded either in the term or asset-backed commercial paper markets are included in the calculation of industry averages. These averages are dollar weighted and based on the receivables balance of custodial pools at the end of each reporting period. As such, these metrics are monthly results. The custodial pool is generally a subset of an issuer’s managed portfolio, depending on the mix of the issuer’s receivables and the manner in which eligible receivables are selected for securitizations.

In order to provide investors with timely and insightful analysis, DBRS monitors each class of all credit card transactions on a monthly basis, focusing on the key performance metrics of securitization portfolios in recent months and, if appropriate, revising base-case assumptions and performing stress testing under various scenarios.

Copies of the Index are available at www.dbrs.com or by contacting us at info@dbrs.com.

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

The applicable methodology is DBRS Criteria for Canadian Credit Card Securitization (April 2011), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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