DBRS Assigns Provisional Ratings of AAA (sf) and A (sf) to Glacier Credit Card Trust Series 2014-1

DBRS has today assigned provisional ratings to the Credit Card Asset-Backed Notes, Series 2014-1 to be issued by Glacier Credit Card Trust (the Trust) as indicated below:

-- AAA (sf) to the Credit Card Asset-Backed Senior Notes, Series 2014-1 (the Senior Notes)
-- A (sf) to the Credit Card Asset-Backed Subordinated Notes, Series 2014-1 (the Subordinated Notes; collectively, with the Senior Notes, the Notes)

Finalization of the ratings is contingent upon receipt of final documents conforming to information already received by DBRS.

The ratings are based on the following factors:

(1) For the Senior Notes, credit enhancement is available through (a) subordination, providing preferential access to cash flows relative to the Subordinated Notes (5.5% of the initial invested amount); (b) overcollateralization (the Enhancement Amount), which consists of entitlement to additional receivables and is dynamic (generally 5.5% of the unadjusted invested amount); and (c) excess spread.

(2) For the Subordinated Notes, credit enhancement is available through (a) the Enhancement Amount (generally 5.5% of the unadjusted invested amount) and (b) excess spread.

(3) Over the past three years, three-month average payment rates remained stable at about 24%. Three-month average loss rates have decreased to 6.3% as of June 2014 from a peak of 8.3% in August 2009; however, they are still among the highest in Canada. This is mitigated by improving late-stage delinquencies (more than 90 days delinquent) and appropriately sized credit enhancement levels. A higher yield since 2008 also helped mitigate the impact of the higher loss rates.

(4) The custodial pool is a well-diversified and seasoned portfolio. The number of accounts in the selected pool exceeded 3.9 million as of June 30, 2014.

DBRS’s stress testing indicates 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.

The net proceeds from the sale of the Notes will be used by the Trust to finance the purchase of an undivided co-ownership interest (Series 2014-1) in the credit card receivables originated and managed by Canadian Tire Bank (CTB). CTB is an indirect, wholly owned subsidiary of Canadian Tire Corporation, Limited (CTC), which is one of the largest retailers in Canada.

The Trust has incorporated DBRS’s partial commingling policy for revolving asset pools. 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.

While DBRS’s Legal Criteria for Canadian Structured Finance expects collections to be remitted to a Trust account within two business days if the Servicer is no longer rated investment grade, DBRS notes that the transaction documents allow partial commingling to continue as long as CTB is the Servicer. Should CTC be downgraded below investment grade and a Servicer Termination Event occurs, subject to certain conditions (see rating report), collections will be remitted within two business days. If a Servicer Termination Event does not occur, DBRS will assess the impact of partial commingling at the time and take the appropriate rating action.

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

The applicable methodologies are DBRS Criteria for Canadian Credit Card Securitization and Legal Criteria for Canadian Structured Finance, which can be found on our website under Methodologies.

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 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.