DBRS Confirms Ratings of Canadian Credit Card Trust II

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

-- AAA (sf) for Credit Card Receivables-Backed Class A Notes, Series 2015-1 (the Class A Notes, Series 2015-1)
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2015-1 (the Class B Notes, Series 2015-1)
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2015-1 (the Class C Notes, Series 2015-1; collectively with the Class A Notes, Series 2015-1 and the Class B Notes, Series 2015-1, the Series 2015-1 Notes)
-- AAA (sf) for Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2016-1 (the Class A Notes, Series 2016-1)
-- A (sf) for Credit Card Receivables-Backed Class B Notes, Series 2016-1 (the Class B Notes, Series 2016-1)
-- BBB (sf) for Credit Card Receivables-Backed Class C Notes, Series 2016-1 (the Class C Notes, Series 2016-1; collectively with the Class A Notes, Series 2016-1 and the Class B Notes, Series 2016-1, the Series 2016-1 Notes)

The rating confirmation is based on the following factors:

(1) For the Class A Notes, Series 2015-1 and for the Class A Notes, Series 2016-1, credit enhancement is available through subordination of 5.75% and 7.75% respectively, excess spread and series-specific cash collateral accounts, which could build up to 5.0% of the initial invested amount.

(2) For the Class B Notes, Series 2015-1 and for the Class B Notes, Series 2016-1, credit enhancement is available through subordination of 2.75% and 3.75% respectively, excess spread and series-specific cash collateral accounts.

(3) For the Class C Notes, Series 2015-1 and for the Class C Notes, Series 2016-1, credit enhancement is available through excess spread and series-specific cash collateral accounts.

(4) Over the past year, three-month average payment rates have continued to increase to 43.1% as of February 2017 from 42.2% as of February 2016. Average annual gross yield also remained strong over the same period, averaging 24.1%.

(5) The portfolio is composed of certain credit cards originated, managed and designated by National Bank of Canada (NBC) rated AA (low) and R-1 (middle) by DBRS.

The portfolio is largely concentrated in Québec and has been more insulated from competition than the rest of Canada. Notwithstanding the relative insulation, three-month average loss rates increased to a peak of 6.5% from 3.8% 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 3.7% as of February 2017. This is further mitigated by increasing payment rates and relatively stable portfolio yields and delinquencies; however, there is considerably more geographic and regional economic risk stemming from the portfolio’s concentration in Québec.

The performance and characteristics of the Trust pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research below). DBRS conducts monthly stress testing of each rated class of the Notes and the results indicate that simultaneous declines in yield and payment rates as well as 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 DBRS Criteria for 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.