DBRS Morningstar Finalizes Provisional Ratings of AAA (sf), A (sf), and BBB (sf) on Trillium Credit Card Trust II, Series 2020-1

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on the Series 2020-1 notes (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 2020-1 (the Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2020-1 (the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2020-1 (the Class C Notes)

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

The Expected Final Payment Date is December 29, 2021.

The ratings are based on the following factors:

(1) For the Class A Notes, credit enhancement (CE) is provided by subordination of 8%, excess spread generated from the Receivables, and the Cash Reserve Account, which is 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, CE is provided by subordination of 3%, excess spread, and the Cash Reserve Account.

(3) For the Class C Notes, CE is provided by excess spread and the Cash Reserve Account.

(4) Since Trust inception, payment rates and gross yields have remained strong, averaging 43% and 25%, respectively. The one-month annualized net loss rate increased in 2016 because of weaker performance in Alberta and spiked to a high of 6.5% in February 2017 because of a one-time cleanup of a backlog in charging off bankrupt accounts. The annualized net loss rate has since come down to 3.5% in November 2019, and delinquencies have trended down since the beginning of 2017. This is further mitigated by high payment rates, stable gross yields, and appropriately sized CE levels.

(5) The custodial pool is a large well-diversified portfolio originated and managed by The Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar).

DBRS Morningstar stress testing indicates that simultaneous declines in yield and payment rates and an increase in losses would not result in the Trust’s failure to repay the Notes on a timely basis. The severity of the tests applied is commensurate with the respective ratings of the Notes.

Notes:
The principal methodology is Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 2019), 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 rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities 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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