DBRS Confirms Ratings of Gloucester Credit Card Trust

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

-- Series 2004-1 Class A Notes at AAA (sf) (the Class A Notes)
-- Series 2004-1 Collateral Notes at BBB (sf) (the Collateral Notes)

The confirmations are based on the following factors:

(1) For the AAA (sf)-rated Class A Notes, credit enhancement is available through 15.5% subordination and excess spread. As of October 2013, the three-month average excess spread is approximately 10.8%.

(2) For the BBB (sf)-rated Collateral Notes, credit enhancement is composed of excess spread and a spread account equivalent to 1.25% of the initial invested amount. This could increase up to 6.0% if the three-month average excess spread falls below 2.0%.

(3) The loss rate, which peaked in 2009, has stabilized over recent years, ranging between 3.7% and 4.9% in 2013.

(4) The payment rate continues to show improvement, increasing to 21.0% as of October 2013 from a low of 11.4% in 2009.

The Trust participates in a co-ownership structure, which means the proceeds from the Notes were used to purchase an undivided co-ownership interest in the receivables of the designated accounts in the custodial pool. The Toronto-Dominion Bank (TD; rated AA and R-1 (high) by DBRS), after the acquisition of substantially all of MBNA Canada’s credit card portfolio, replaces MBNA Canada as the seller and 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 5% for the Notes.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to TD as long as TD remains as the servicer. In terms of collection remittance, TD need not make the daily deposits into the Trust accounts until immediately prior to each distribution day, as long as TD maintains a minimum short-term rating of R-1 (low) and a Pay Out Event (as defined in the series agreements) has not occurred. 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 DBRS methodology “Legal Criteria for Canadian Structured Finance.” DBRS believes that the partial commingling provisions mitigate potential losses to the noteholders, as well as providing 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 of the Notes. Such events are called amortization events. Following the occurrence of an amortization event, collections allocable to the Notes will be directed first to pay Trust expenses and interest on the Notes sequentially, then to repay outstanding principal of the Class A Notes until nil. Principal repayments of the Collateral Notes will be made only after the Class A Notes have been repaid in full. Essentially, this provides the Class A Notes preferential access to the cash flows generated from the receivables for principal repayments, in an amount equal to the principal balance of the Collateral Notes.

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 custodial pool and the Notes are available and updated each month in the Monthly Canadian ABS Report. DBRS conducts monthly stress testing of each rated class of the Notes, with results indicating 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.

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, Legal Criteria for Canadian Structured Finance, Derivatives Criteria for Canadian Structured Finance and Canadian Structured Finance Surveillance, which are available on our website under Methodologies.