DBRS Confirms the Ratings of Broadway Credit Card Trust

DBRS has today confirmed the ratings of all the outstanding rated notes (the Notes) issued by Broadway 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) for Credit Card Receivables-Backed Class A Notes, Series 2004-2
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2004-2
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2004-2

The rating confirmation is based on the following factors:

(1) For the AAA (sf)-rated Class A Notes, credit enhancement is available through subordination equivalent to 17% (including unrated enhancement notes), excess spread and a cash reserve account, which was initially seeded at 1.5% and could increase to 5% if the three-month average excess spread falls to or below 2.5%. The Series 2004-2 Class A Notes incorporate a fixed-floating interest rate swap to effectively convert the related cost of funds to a floating rate base, which has resulted in a slightly lower cost of funds and a higher excess spread in the current interest rate environment.

(2) For the A (sf)-rated Class B Notes, credit enhancement is available through subordination (9.45%), excess spread and the cash reserve account.

(3) For the BBB (sf)-rated Class C Notes, credit enhancement is available through subordination (5.68%), excess spread and the cash reserve account.

(4) Before the commencement of the accumulation period, $7 million was seeded into the yield supplement account from excess spread to cover the potential negative carry during the accumulation period. As of October 31, 2013, the account balance stood at $4.9 million.

(5) The gross yield has remained stable around 20%. Payment rates have continued to increase since 2010, standing at 21.07% in October 2013, while net loss rates have gradually decreased from 10.5% in August 2011 to 5.09% in October 2013.

(6) The custodial pool is diversified and well-seasoned.

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 credit card accounts in the custodial pool. Each co-ownership interest is separate from, and in addition to, co-ownership interests previously or subsequently created. Canadian Imperial Bank of Commerce (CIBC), 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 credit card 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 the Notes.

A servicing fee of 1.87% is paid to CIBC as the servicer. CIBC 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 DBRS’s 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 final payment dates of the Notes, certain events may result in an obligation of the Trust to pay principal amounts prior to the expected final payment dates 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 and then to repay the outstanding principal of the Class A Notes until it is zero. Principal repayments of lower-ranked notes will be made only after more senior notes have been repaid in full. Essentially, this provides the more senior notes preferential access to the cash flows generated from the receivables for principal repayments, in an amount equal to the subordination available for this class of notes.

The performance and characteristics of the custodial 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 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 Canadian Structured Finance Surveillance, DBRS Criteria for Canadian Credit Card Securitization, Derivatives Criteria for Canadian Structured Finance and Legal Criteria for Canadian Structured Finance, which are available on our website under Methodologies.