DBRS Assigns Provisional Ratings of AAA (sf), AA (sf) and BBB (sf) to Master Credit Card Trust II, Series 2013-3

DBRS has today assigned provisional ratings to the Credit Card Receivables-Backed Notes, Series 2013-3 (the Notes) to be issued by Master Credit Card Trust II (the Trust) as follows:

– AAA (sf) to the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2013-3 (the Class A Notes)
– AA (sf) to the Credit Card Receivables-Backed Class B Notes, Series 2013-3 (the Class B Notes)
– BBB (sf) to the Credit Card Receivables-Backed Class C Notes, Series 2013-3 (the Class C Notes)

The Notes are expected to be denominated in U.S. dollars. A cross-currency, interest rate swap is expected to be in place for the 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) For the Class A Notes, credit enhancement will be available through subordination of 5.5%, excess spread and the Cash Collateral Account, which could build up to 5% of the initial Allocated Amount.

(2) For the Class B Notes, credit enhancement will be available through subordination of 3.5%, excess spread and the Cash Collateral Account.

(3) For the Class C Notes, credit enhancement will be available through excess spread and the Cash Collateral Account.

(4) Over the past three years, three-month average payment rates have been strong, averaging about 38%, and three-month average gross yields have been stable at greater than 21%. While the three-month average loss rate peaked at 5.0% in March 2010, it has since declined and stood at 3.5% as of May 2013, one of the lowest in Canada. While current loss rates remain above levels experienced prior to the recent financial crisis, this is mitigated by excess spread, which is expected to provide a solid first line of defense against credit losses.

(5) Bank of Montreal offers a successful loyalty program and it has the experience and demonstrated ability to manage the largest MasterCard portfolio in Canada.

(6) The receivables are seasoned and well-diversified.

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.

DBRS notes that the transaction documents do not require the remittance of collections into a Trust account within two business days when the servicer is no longer rated investment grade, as expected in DBRS’s “Legal Criteria for Canadian Structured Finance.” Should the servicer be downgraded below investment grade, DBRS will assess the impact of partial commingling at the time and take appropriate rating action.

Notes:
The applicable methodologies are DBRS Criteria for Canadian Credit Card Securitization (April 2011), Legal Criteria for Canadian Structured Finance (September 2012) and Hedge Counterparty Criteria for Canadian Structured Finance Transactions (September 2012), 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.