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

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on the following notes issued by Glacier Credit Card Trust (the Trust):

-- AAA (sf) on the Credit Card Asset-Backed Senior Notes, Series 2020-1 (the Senior Notes)
-- A (sf) on the Credit Card Asset-Backed Subordinated Notes, Series 2020-1 (the Subordinated Notes; together, with the Senior Notes, the Notes)

The Notes have an Expected Repayment Date of September 22, 2025.

On September 10, 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, and subsequently updated on June 1, 2020 and July 22, 2020. For details see https://www.dbrsmorningstar.com/research/366542. 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’s 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 Senior Notes, credit enhancement (CE) is available through (A) subordination, providing preferential access to cash flows relative to the Subordinated Notes (6.5% of the Initial Invested Amount); (B) overcollateralization (the Enhancement Amount), which consists of entitlement to additional receivables and is dynamic (generally 6.0% of the unadjusted Invested Amount); and (C) excess spread.

(2) For the Subordinated Notes, CE is available through (A) the Enhancement Amount (generally 6.0% of the unadjusted Invested Amount) and (B) excess spread.

(3) Over the past three years, three-month average payment rates and gross yield remained stable around 26% and 21%, respectively. Three-month average net loss rates decreased to a low of 4.4% in February 2019 from a peak of 8.3% in August 2009, and while they increased to 5.9% in April 2020 because of an increased number of consumer proposals over 2018 and 2019, they have since come back down to 4.4% as of July 2020.

(4) The portfolio is generally higher credit risk and comprises more revolvers (i.e., cardholders that carry an outstanding balance from month to month) than other DBRS Morningstar-rated credit card securitization portfolios, as evidenced by the portfolio's historically higher loss rates and lower payment rates compared with other Canadian issuers. This is mitigated by Canadian Tire Bank’s strong credit risk management and servicing experience, improved losses and delinquencies, and appropriately sized CE levels.

(5) The Receivables pool is a well-diversified and seasoned portfolio. The number of accounts in the selected pool exceeded 3.7 million as of June 30, 2020.

DBRS Morningstar’s stress testing indicates 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.

While DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance” expects collections to be remitted to a Trust account within two business days if the Servicer is no longer rated investment grade, DBRS Morningstar notes that the transaction documents allow partial commingling to continue as long as Canadian Tire Bank is the Servicer. If Canadian Tire Corporation, Limited (rated BBB with a Stable trend by DBRS Morningstar) is downgraded to below investment grade and a Servicer Termination Event occurs, subject to certain conditions (please refer to the corresponding rating report), collections will be remitted within two business days. If a Servicer Termination Event does not occur, DBRS Morningstar will assess the impact of partial commingling at the time and take appropriate rating action.

DBRS Morningstar notes that there is no cap on indemnity amounts payable to service providers in the Priority of Distributions as expected in DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance.” If the indemnity is above a reasonable amount, DBRS Morningstar will assess the impact of uncapped cash outflow at the time and take appropriate rating action.

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.

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 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577