DBRS Comments on Performance of Canadian Credit Cards in Q1 2013

DBRS has today published the Canadian Credit Card Performance Index (the Index) for Q1 2013. Key performance metrics, as measured by DBRS, have remained stable, both quarter-over-quarter and year-over-year.

Highlights observed in this quarter include:

-- Average loss rates continued their downward trend, ending at 3.8%. This is an improvement of 84 basis points (bps) year-over-year. On a quarterly basis, the average loss rate remained flat.

-- Average payment rates also remained stable, increasing by 87 bps year-over-year, ending at 35.3%. On a quarterly basis, the average payment rate declined by approximately 2.6%. However, this metric remains volatile, from a low of 32.9% and a high of 40.9% over a trailing 12-month period.

-- Average gross yield levels saw a slight uptick of approximately 4 bps year-over-year and 28 bps quarter-over-quarter, ending at 21.3%.

-- Average excess spread levels, while down 13 bps quarter-over-quarter, remained elevated and well above March 2012 levels of 12.6%.

Canadian credit card issuers were active in the first quarter of 2013, with new issuance totalling approximately $2.7 billion (Canadian-dollar equivalent). In stark contrast to 2012, where a combined $6.1 billion in U.S. dollar notes were issued, the majority of notes issued in the first quarter of 2013 were domestic. Golden Credit Card Trust is the only issuer so far in 2013 with a U.S. dollar issuance.

Credit card notes continue to dominate the overall Canadian securitization market, accounting for 38.6% of the total outstanding in the first quarter of 2013, compared to 37.8% in the previous quarter. Total outstanding increased from $25.0 billion last quarter to $25.7 billion in Q1 2013, with the aggregate custodial pool declining quarter-over-quarter to $39.0 billion. New issuance this quarter was partially offset by the full repayment of CARDS II Trust, Series 2006-1 and 2011-3, Glacier Credit Card Trust, Series 2008-1 and Canadian Credit Card Trust, Series 2008-1 in an amount of $1.9 billion.

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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