DBRS Confirms Ratings of AAA (sf), A (sf) and BBB (sf) on Canadian Credit Card Trust II, Series 2015-1 Post Re-Opening

DBRS Limited (DBRS) has today confirmed the ratings on the Credit Card Receivables-Backed Notes, Series 2015-1 (the Notes) issued by Canadian Credit Card Trust II (the Trust) following the re-opening of Series 2015-1 as indicated below:

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

The Trust re-opened Series 2015-1 by issuing an additional $500 million Class A Notes, $15.9 million Class B Notes and $14.6 million Class C Notes with the same coupons (1.829%, 2.179% and 2.679% for Class A, Class B and Class C, respectively) and Expected Final Payment Date (March 24, 2020) as the initial offering. The total amount of Notes outstanding after the re-opening is $928,381,965.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement is available through subordination of 5.75%, excess spread and the cash collateral account, which could build up to 5.0% of the initial invested amount.

(2) For the Class B Notes, credit enhancement is available through subordination of 2.75%, 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 two years, three-month average payment rates have continued to increase, from 38% to 44% as of June 2015. Three-month average gross yields also remained strong over the same period, averaging 22.9%.

(5) The custodial pool is well seasoned, with approximately 72% of the receivables arising from accounts greater than 60 months old.

The portfolio is largely concentrated in Québec, and this is both positive and negative. From a positive perspective, the portfolio has been more insulated from competition than the rest of Canada. Notwithstanding the relative insulation, three-month average loss rates increased from 3.8% to a peak of 6.5% between 2008 and 2009, similar to the experience of the entire Canadian credit card industry. The loss level has since come back down to pre-recessionary levels and was 4.4% as of June 2015. This is further mitigated by increasing payment rates, stable portfolio yields and declining delinquencies. From a negative perspective, there is considerably more geographic and regional economic risk stemming from the portfolio’s concentration in Québec.

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 repaying the Notes on a timely basis. 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 below investment grade, DBRS will assess the impact of partial commingling at the time and take appropriate rating action.

On April 10, 2015, Canadian Credit Card Trust assigned all of its assets and liabilities to the Trust, and the Trust became a co-obligor of the outstanding notes until their legal maturity (the latest in September 2017). For more information on the assignment and assumption, please refer to the DBRS press release dated April 10, 2015.

Please refer to the Series 2015-1 rating report dated April 29, 2015, for more details. The report will not be updated to reflect the re-opening of the series.

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

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 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.