DBRS Confirms Ratings of Canadian Credit Card Trust

DBRS Limited (DBRS) has today confirmed the ratings of all the outstanding notes (the Notes) issued by Canadian Credit Card Trust (CCCT). Following an assignment and assumption agreement dated April 20, 2015, Canadian Credit Card Trust II (CCCT II, together with CCCT, the Trust) became a co-obligor of the Notes. The confirmation is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants. The Notes are confirmed as follows:

-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2010-1
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2010-1
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2010-1
-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2013-1
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2013-1
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2013-1

The rating confirmations are based on the following factors:

(1) For the AAA-rated Class A Notes, credit enhancement is available through subordination, excess spread and series-specific cash collateral accounts, which could build up to 5% if the three-month average excess spread falls below 2.0%. The subordination level is 6.25%. Over the last 12 months, the average excess spread for Series 2010-1 and Series 2013-1 has been 15.6% and 17.6%, respectively.

(2) For the “A”-rated Class B Notes, credit enhancement is available through subordination of 2.75%, excess spread and series-specific cash collateral accounts.

(3) For the BBB-rated Class C Notes, credit enhancement is composed of excess spread and series-specific cash collateral accounts.

(4) Over the past two years, the average gross yield has remained stable at around 22.9% and the average monthly payment rate has improved to around 40.9%. Over the same period, the one-month loss rate averaged 4.0%.

(5) The Trust pool is diversified, albeit concentrated in Québec, and well seasoned. It is composed of certain credit card accounts originated, managed and designated by National Bank of Canada (NBC), rated AA (low)/R-1 (middle) by DBRS.

The Trust is structured as a master trust. The proceeds of the Notes are used by the Trust to purchase receivables (the Receivables) arising from MasterCard credit card accounts originated and maintained by NBC. Each series of Notes is issued under a Certificate of Issuance Agreement. NBC, as the seller, retains a residual interest (Retained Interest) in the Trust pool.

The assets of the Trust 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 collections for each series are not available to the noteholders of any other series unless there is an excess, which can then be allocated to a series with a shortfall. The Retained Interest is at least 7% for all series of Notes, which may be reduced to 2%, subject to satisfaction of the Rating Agency Condition.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to NBC as long as NBC remains as servicer. NBC 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 an account in the name of the Custodian will be required within two business days of processing. However, partial commingling by the servicer may be permitted. The Trust has incorporated DBRS’s partial commingling policy for revolving asset pools as outlined in DBRS’s “Legal Criteria for Canadian Structured Finance” methodology. 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.

However, 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” methodology. Should the servicer be downgraded below investment grade, DBRS will assess the impact of partial commingling at the time and take appropriate action.

Notwithstanding the stated expected final payment dates of the Notes, certain events may result in early repayment or delays of one or more series. Such events are called amortization events. Following the occurrence of a series amortization event, collections of finance charges allocable to this series will be directed first to pay Trust expenses and interest on the series notes, sequentially by class in alphabetical order. Principal collections allocable to this series will be directed to repay the entire outstanding principal of each class of note, sequentially in alphabetical order. Principal repayments of lower-ranked notes will be made only after more senior notes have been repaid in full. Essentially, this provides senior notes preferential access to additional principal collections, in an amount equal to the available subordination for this series.

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

Because the Trust is a master trust, all series of Notes are supported by the same pool of Receivables and although each series is issued under a separate Certificate of Issuance Agreement, they are 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. 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 Rating Canadian Credit Card and Personal Line of Credit Securitizations, Legal Criteria for Canadian Structured Finance and Canadian Structured Finance Surveillance Methodology, which are available on our website under Methodologies.