DBRS Morningstar Confirms Ratings of Master Credit Card Trust II

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following outstanding notes (the Notes) issued by Master Credit Card Trust II (MCCT II or the Trust). The confirmation is part of DBRS Morningstar’s continued effort to provide timely credit rating opinions and increased transparency to market participants.

-- Credit Card Receivables-Backed Class A Notes, Series 2018-4 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2018-4 at AA (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2018-4 at BBB (sf)

DBRS Morningstar initially published its outlook on the Coronavirus Disease (COVID-19) pandemic’s impact on key economic indicators for the 2020–22 time frame in April 2020. DBRS Morningstar last updated the macroeconomic scenarios on July 22, 2020, in its “Global Macroeconomic Scenarios: July Update” at https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update. For the rated Notes, DBRS Morningstar considered impacts consistent with the moderate scenario in the referenced commentary in its analysis. The rating confirmations are based on the following factors, each of which includes additional analysis and, where appropriate, additional stresses to expected performance as a result of global efforts to contain the spread of the coronavirus pandemic:

(1) The Notes benefit from excess spread, which has ranged between 18.1% and 19.7% in the past 12 months, and series-specific cash accounts that could build up to 5.0% of the initial or Maximum Allocated Amount, as applicable. For the AAA (sf)-rated notes and the AA (sf)-rated notes, credit enhancement is also available through subordination of at least 5.5% and 3.5%, respectively.

(2) Payment deferrals were offered to customers affected by the coronavirus pandemic. Average principal payment rates declined slightly in Q2 2020 to 44.9% from 48.8% in the 12 months ended March 2020. Partial interest rate relief offered to some customers during the deferral period combined with lower card usage contributed to a slightly lower gross yield of 24.6% in Q2 2020 compared with 25.4% in the 12 months ended March 2020.

(3) Net losses remained stable and averaged 3.2% over the past 12 months.

(4) The Trust pool is a well-diversified and seasoned portfolio composed of certain Mastercard credit card accounts originated, managed, and designated by Bank of Montreal (BMO). BMO is the fourth-largest bank in Canada by assets and is rated AA/R-1 (high) with a Stable trend by DBRS Morningstar as of June 2020.

The performance and characteristics of the Trust pool and the Notes are available and updated each month in the Monthly Canadian ABS Report available at www.dbrsmorningstar.com. DBRS Morningstar conducts monthly stress testing of each rated class of the Notes, and the results indicate that simultaneous declines in yield and payment rates and 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.

For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrsmorningstar.com.

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:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Master Canadian Structured Finance Surveillance Methodology (June 28, 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.

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

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