DBRS Finalizes Provisional Ratings of AAA (sf) and BBB (sf) on Trillium Credit Card Trust II, Series 2018-1

DBRS Limited (DBRS) finalized its provisional ratings on the notes issued by Trillium Credit Card Trust II (the Trust) as follows:

-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2018-1 (the Class A Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2018-1 (the Class B Notes; together with the Class A Notes, the Notes)

The Class A Notes are denominated in U.S. dollars while the Class B Notes are in Canadian dollars. A cross-currency interest rate swap is in place for the Class A Notes.

The Expected Final Payment Date of the Notes is February 26, 2020.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement is provided by subordination of 8%, excess spread generated from the receivables and the Cash Reserve Account, which was zero at closing but could build up to 5% of the Initial Invested Amount if excess spread is compressed below stated levels.

(2) For the Class B Notes, credit enhancement is provided by excess spread and the Cash Reserve Account.

(3) Since 2010, payment rates and gross yields have remained strong, averaging 41% and 22%, respectively. The one-month loss rate increased in 2016 due to weaker performance in Alberta and spiked to a high of 6.5% in February 2017 due to a one-time cleanup of a backlog in charging off bankrupt accounts. The loss rate has since come down to 2.9% as at January 2018, and delinquencies have trended downward since the beginning of 2017. This is further mitigated by high payment rates, stable gross yields and appropriately sized credit enhancement levels.

(4) The custodial pool is a large, well-diversified portfolio originated and managed by The Bank of Nova Scotia.

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.

Notes:
The principal methodologies are Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 2017), Legal Criteria for Canadian Structured Finance (July 2017) and Derivatives Criteria for Canadian Structured Finance (July 2017), which can be found on dbrs.com 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.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.