DBRS Confirms the Ratings of Golden Credit Card Trust

DBRS has today confirmed the ratings of all the outstanding notes (the Notes) issued by Golden Credit Card Trust (the Trust). The confirmation is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants.

-- AAA (sf) on the Credit Card Receivables-Backed Senior Notes, Series 2010-1
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2010-1
-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Senior Notes, Series 2010-2
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2010-2
-- AAA (sf) on the Credit Card Receivables-Backed Senior Notes, Series 2011-1
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2011-1
-- AAA (sf) on the Credit Card Receivables-Backed Senior Floating Rate Notes, Series 2012-1
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-1
-- AAA (sf) on the Credit Card Receivables-Backed Senior Notes, Series 2012-2
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-2
-- AAA (sf) on the Credit Card Receivables-Backed Senior Floating Rate Notes, Series 2012-3
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-3
-- AAA (sf) on the Credit Card Receivables-Backed Senior Notes, Series 2012-4
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-4
-- AAA (sf ) on the Credit Card Receivables-Backed Senior Notes, Series 2012-5
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-5
-- AAA (sf) on the Credit Card Receivables-Backed Senior Floating Rate Notes, Series 2012-6
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2012-6
-- AAA (sf) on the Credit Card Receivables-Backed Senior Floating Rate Notes, Series 2013-1
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2013-1
-- AAA (sf) on the Credit Card Receivables-Backed Senior Floating Rate Notes, Series 2013-2
-- BBB (high) (sf) on the Credit Card Receivables-Backed Subordinated Notes, Series 2013-2

The rating confirmation is based on the following factors:

(1) For the AAA-rated senior notes, credit enhancement is available through subordination of 4.5%, excess spread, which is currently in the range of 15.8% to 18.1%, and series-specific cash accounts, which could build up to 5% of the Initial Invested Amount.

(2) For the BBB (high)-rated subordinated notes, credit enhancement is composed of excess spread and series-specific cash accounts.

(3) The performance of the Trust’s portfolio has been strong since inception and has demonstrated resilience throughout the recent economic downturn. The payment rate remains among the highest in Canada, averaging 44% over the last year, and the average loss rate remains among the lowest. While the one-month loss rate peaked at 4.2% in March 2010, it has since been steadily decreasing and stood at 2.2% at the end of September 2013. In addition, gross yield has averaged around 20% after the inclusion of interchange in October 2009.

(4) The custodial pool is a well-diversified and seasoned portfolio, composed of certain credit card accounts originated, managed and designated by Royal Bank of Canada (RBC). RBC is the largest financial institution in Canada and is rated AA/R-1 (high) by DBRS.

The Trust participates in a co-ownership structure, which means the proceeds from each series of Notes were used to purchase an undivided co-ownership interest in the receivables of the designated accounts in the custodial pool. Each co-ownership interest is separate from and in addition to co-ownership interests previously created. RBC, as the seller, retains the residual undivided co-ownership interest (Retained Interest) in the custodial pool. The receivables include all amounts to be collected under the designated accounts, such as finance charges, cash advance fees, annual fees and principal amounts billed to cardholders, as well as interchange. The Retained Interest is at least 7% for all series of Notes.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to RBC as long as RBC remains as the servicer. RBC may remit collections 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 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 as outlined in the “Legal Criteria for Canadian Structured Finance” (see Related Research below). 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.

Notwithstanding the stated expected principal payment dates of the Notes, certain events may result in early repayment or delays for one or more series. Such events are called amortization events. Following the occurrence of a series amortization event, collections allocable to this series will be directed first to pay Trust expenses and interest on the senior notes (and swap payments, if applicable) and then to repay outstanding principal of the senior notes until nil. Interest and principal repayments of the subordinated notes will be made only after the senior notes have been repaid in full. Essentially, this provides the senior notes preferential access to the cash flows generated from the receivables for principal repayments, in an amount equal to the subordination available for the senior notes.

The accounts in the custodial pool are originated and managed by RBC, as seller and servicer, according to its underwriting standards and credit and collection policies. In order to be eligible for transfer to the custodial pool, accounts must meet certain criteria. There are also restrictions on account additions by RBC, as seller, to ensure consistent credit quality of the custodial pool.

As the Trust participates in a co-ownership structure, all series of Notes 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. However, these requirements may be series specific. For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

The performance and characteristics of the Trust pool and the Notes are available and updated each month in the “Monthly Canadian ABS Report” (see Related Research below). DBRS conducts monthly stress-testing of each rated class of the Notes and the results indicate 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.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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”, “Derivative Criteria for Canadian Structured Finance”, “Legal Criteria for Canadian Structured Finance” and “Canadian Structured Finance Surveillance”, which are available on our website under Methodologies.