DBRS Confirms Ratings on Eagle Credit Card Trust

DBRS Limited (DBRS) has today confirmed its ratings of all the outstanding Notes (the Notes) issued by Eagle Credit Card Trust (the Trust). The confirmation is part of DBRS’s continued efforts to provide timely credit rating opinions and increased transparency to market participants.

-- Credit Card Receivables-Backed Class A Notes, Series 2013-1 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2013-1 at A (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2013-1 at BBB (sf)
-- Credit Card Receivables-Backed Class A Notes, Series 2015-1 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2015-1 at A (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2015-1 at BBB (sf)

The confirmation is based on the following factors:

(1) For the AAA (sf)-rated Class A Notes, credit enhancement is provided by subordination of 7.0%; excess spread, which has been in the range of 14.8% to 16.8% over the last 12 months; and the series-specific reserve account, which could build up to 5.0% of the Invested Amount if the three-month average excess spread falls below 2.0%.

(2) For the A (sf)-rated Class B Notes, credit enhancement is provided by subordination of 3.5%, excess spread and the series-specific reserve account.

(3) For the BBB (sf)-rated Class C Notes, credit enhancement is provided by excess spread and the series-specific reserve account.

(4) The Trust’s inclusion of a letter of credit (LOC) which equals to 9% of the outstanding balance of the Series 2013-1 notes. While the LOC is a credit positive, DBRS considers that the benefit is constrained by the condition that the LOC is available only when another rating agency continues to rate Series 2013-1, which may cease at any time.

(5) Payment rates and gross yield are among the highest in Canada. Payment rates have averaged above 50.0% over the past three years, while three-month average gross yield reached 24.7% as of July 31, 2016. While the three-month average loss rate increased to a peak of 7.0% in May 2009, it has since declined to 3.4% as of July 31, 2016, and delinquencies have also stabilized.

(6) The custodial pool is a well-diversified portfolio.

The Trust participates in a co-ownership structure, which means that the proceeds from each series of Notes were used to purchase an undivided co-ownership interest in the receivables of the designated accounts in the custodial pool. Each co-ownership interest is separate from and in addition to co-ownership interests previously created. President’s Choice Bank (PC Bank), 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 designated accounts, such as finance charges, cash advance fees, annual fees, interchange fees and principal receivables billed to cardholders. The custodial pool must be at least 107% of the Aggregate Invested Amount.

As the accounts are sold on a fully serviced basis, no servicing fee will be paid to PC Bank as long as PC Bank remains as the servicer. PC Bank shall remit collections as required to the Distribution Account and the Reserve Account on each distribution date. While PC Bank is currently not permitted to fully commingle collections, as its performance guarantor does not have a short-term rating of R-1 (low) or higher, it is allowed to commingle the amount in excess of what is required to be paid or deposited for the next distribution date (partial commingling) as outlined in the transaction documents, subject to the provisions listed in DBRS’s “Legal Criteria for Canadian Structured Finance.” DBRS notes that the transaction documents do not require the remittance of collections within two business days when the performance guarantor is no longer rated investment grade as expected in DBRS’s “Legal Criteria for Canadian Structured Finance.” Should the performance guarantor be downgraded below investment grade, DBRS will assess the impact of partial commingling at the time and take appropriate rating action. If the performance guarantor is downgraded below BB, all collections allocable to the Noteholders will be remitted to a Trust account within two business days.

Notwithstanding the stated expected principal 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. For the Series 2013-1 Notes, following the occurrence of a series amortization event, collections allocable to this series will be directed first to pay all Trust expenses on a pro rata basis; second, to repay all accrued and unpaid interest on Class A, followed by the outstanding principal of the Class A Notes until nil; third, all accrued and unpaid interest on Class B, followed by the outstanding principal of the Class B Notes until nil; and fourth, all the accrued and unpaid interest on Class C, followed by the outstanding principal of the Class C Notes until nil. For the Series 2015-1 Notes, collections will be used to pay interest sequentially, first to the Class A Notes, then the Class B Notes and last to the Class C Notes. After foregoing payment of interest, payments of principal will be made until full repayment of the Class A notes, then the Class B Notes, and finally the Class C Notes. 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 accounts in the custodial pool are originated and managed by PC Bank, as seller and servicer, according to its underwriting standards and credit and collection policies. In order to be eligible for transfer to the custodial pool, accounts must meet certain criteria. There are also restrictions on account additions by PC Bank, as seller, to ensure consistent credit quality of the custodial pool.

As the Trust participates in a co-ownership structure, all series of Notes are supported by the same pool of receivables and 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 relevant rating reports of the Trust at www.dbrs.com.

The performance and characteristics of the custodial pool and the Notes are available and updated each month in the Monthly Canadian ABS Report. DBRS conducts a monthly stress testing of each rated class of the Trust and the result 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.

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 Master Canadian Structured Finance Surveillance, which are available on our website under Methodologies.