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

DBRS Limited (DBRS Morningstar) finalized the provisional ratings on the Credit Card Receivables-Backed Notes, Series 2020-1 (Series 2020-1) issued by Eagle Credit Card Trust (the Trust) as follows:

-- AAA (sf) on the Credit Card Receivables-Backed 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; collectively with the Class A Notes and Class B Notes, the Notes)

Series 2020-1 has a Targeted Distribution Date of July 17, 2025.

On July 22, 2020, the DBRS Morningstar Sovereigns group published its updated outlook on the impact on key economic indicators for the 2020–22 time frame, which was updated from the initial outlook that was published on April 16, 2020. For details see https://www.dbrsmorningstar.com/research/364318. For the ratings assigned, DBRS Morningstar’s analysis considered adjustments to base-case assumptions as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19). In connection with DBRS Morningstar Sovereigns group's moderate economic scenario, DBRS Morningstar applied adjustments that lead to an increase in the base case net loss rate and decreases in the base case yield and payment rate. The increase in unemployment is expected to lead to increases in delinquencies and loss rates and decreases in payment rates as borrowers' ability to repay is reduced. In addition, the expected decline in spending during this time is expected to result in lower interchange yield and payment rates.

DBRS Morningstar considered the following factors in its analysis:

(1) For the Class A Notes, credit enhancement is available through subordination of 7.0%, providing preferential access to cash flows relative to the Class B Notes and Class C Notes, excess spread, and the Reserve Account, which could build up to 5% of the Invested Amount.

(2) For the Class B Notes, credit enhancement is available through subordination of 3.5%, providing preferential access to cash flows relative to the Class C Notes, excess spread, and the Reserve Account.

(3) For the Class C Notes, credit enhancement is available through excess spread and the Reserve Account.

(4) Payment rates and gross yield are among the highest in Canada. Over the past three years, payment rates have averaged 59% while gross yield has averaged 25%. The three-month average net loss rate has also been strong, averaging approximately 3.1% over the past three years and was 3.5% as of June 30, 2020. Although performance is expected to be negatively affected by the coronavirus pandemic, the portfolio comprises a large percentage of prime borrowers, who typically demonstrate a stronger ability to meet their credit card obligations because of their credit quality and tendency to have more financial resources and funding options.

(5) The custodial pool is diversified and well seasoned, with approximately 78.3% of the Receivables arising from accounts that are at least 48 months old, as of June 30, 2020.

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 transaction documents do not require the remittance of collections into a Trust account within two business days when the Performance Guarantor is no longer rated investment grade, as expected in DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance” methodology. Should the Performance Guarantor be downgraded below investment grade, DBRS Morningstar will assess the impact of partial commingling at the time and take appropriate rating action.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 6, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.dbrsmorningstar.com or contact us at [email protected].

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