DBRS Assigns Ratings of AAA (sf), AA (sf) and BBB (sf) to Master Credit Card Trust II, Series 2015-1

DBRS Limited (DBRS) has today assigned ratings to the Credit Card Receivables-Backed Notes, Series 2015-1 (the Notes) issued by Master Credit Card Trust II (the Trust) as follows:

-- AAA (sf) to the Credit Card Receivables-Backed Class A Notes, Series 2015-1 (the Class A Notes)
-- AA (sf) to the Credit Card Receivables-Backed Class B Notes, Series 2015-1 (the Class B Notes)
-- BBB (sf) to the Credit Card Receivables-Backed Class C Notes, Series 2015-1 (the Class C Notes)

As the Notes represent part of the seller’s interest in the custodial pool of credit card receivables, the rating on the Class A Notes is an opinion on the risk that the Trust will fail to satisfy its financial obligations with respect to the Class A Monthly Interest and the Class A Allocated Amount, as defined in the Series 2015-1 Supplement.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement is available through subordination of at least 5.5%, excess spread and the Cash Collateral Account, which could build up to 5% of the Maximum Allocated Amount (as defined in the Series 2015-1 Supplement).

(2) For the Class B Notes, credit enhancement is available through subordination of at least 3.5%, excess spread and the Cash Collateral Account.

(3) For the Class C Notes, credit enhancement is available through excess spread and the Cash Collateral Account.

(4) Over the past three years, three-month average payment rates and gross yields have been strong, averaging about 41% and 23%, respectively, and showing increasing trends. While the three-month average loss rate peaked at 5.0% in March 2010, it has since declined and stood at 3.2% as of February 2015, one of the lowest in Canada. While current loss rates remain above levels experienced prior to the recent financial crisis, this is mitigated by excess spread, which is expected to provide a solid first line of defense against credit losses.

(5) Bank of Montreal, as the seller, offers a successful loyalty program, and it has the experience and demonstrated ability to manage the largest MasterCard portfolio in Canada.

(6) The receivables are seasoned and well-diversified.

DBRS stress testing indicates that simultaneous declines in yield and payment rates and increases in losses would not result in a failure of the Trust in satisfying its financial obligations with respect to the Notes. The severity of the tests applied is commensurate with the respective ratings of the Notes.

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

Notes:
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 (November 2014) and Legal Criteria for Canadian Structured Finance (August 2014), which are available on our website under Methodologies.

The Rule 17g-7 Report of Representations and Warranties is 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.