DBRS Morningstar Finalizes Provisional Ratings of AAA (sf), A (sf) and BBB (sf) on CARDS II Trust, Series 2019-2

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on the following notes (the Notes) issued by CARDS II Trust (the Trust):

-- AAA (sf) on the Credit Card Receivables-Backed Class A Notes, Series 2019-2 (the Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2019-2 (the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2019-2 (the Class C Notes)

The Targeted Principal Distribution Date of the Notes is November 15, 2024.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement (CE) is available through subordination of 7.25% (4.75% Class B Notes and 2.50% Class C Notes), excess spread and the series-specific cash reserve account, which could build up to 5.00% of the initial invested amount.

(2) For the Class B Notes, CE is provided by subordination of 2.50% (the Class C Notes), excess spread and the series-specific cash reserve account.

(3) For the Class C Notes, CE is available through excess spread and the series-specific cash reserve account.

(4) Since 2008, three-month average payment rates have remained strong at above 30%. While the one-month loss rate peaked at 7.3% in May 2009, loss rates and delinquencies have declined and stabilized, with the three-month average loss rate at 3.1% as of September 2019, similar to levels experienced prior to 2008. The removal of the 2% cap on interchange on June 25, 2009, also mitigated the impact of the increase in loss rates prior to May 2009 and increased protection for investors.

(5) The custodial pool is a well-diversified, seasoned portfolio and is one of the largest in Canada.

DBRS Morningstar 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 Morningstar notes that the program fees and expenses (which could include indemnity payments) that are payable to the financial services agent are not subordinated to payments to Noteholders, as expected in DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance.” DBRS Morningstar will monitor the monthly servicer reports, and to the extent that these fees and expenses may affect payments to Noteholders, DBRS Morningstar will review and take appropriate rating actions, if necessary.

DBRS Morningstar also notes that a true sale opinion in respect of the co-ownership interests in any new accounts that may be added will not be delivered in connection with each account addition, as expected in DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance.” DBRS Morningstar considers the risk minimal, as additional accounts are transferred to the Custodian infrequently, an officer’s certificate is provided by the Seller in connection with each additional account transfer and a true sale opinion in respect of the co-ownership interests in any new accounts that may be added will be delivered every six months for any additions made within the previous six months.

Notes:
The principal methodology is Rating Canadian Credit Card and Personal Line of Credit Securitizations, which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at [email protected].

The Trust or Canadian Imperial Bank of Commerce, in its capacity as the Financial Services Agent of the Trust, participated in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the Trust or the Financial Services Agent in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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