DBRS Morningstar Finalizes Provisional Ratings of AAA (sf), A (sf), and BBB (sf) on Trillium Credit Card Trust II, Series 2021-1 and Series 2021-2

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on Series 2021-1 and Series 2021-2 (collectively, the Notes) issued by Trillium Credit Card Trust II (the Trust) as follows:

-- AAA (sf) on the Credit Card Receivables-Backed Class A Notes, Series 2021-1 (the Series 2021-1 Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2021-1 (the Series 2021-1 Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2021-1 (the Series 2021-1 Class C Notes)
-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2021-2 (the Series 2021-2 Class A Notes, collectively with the Series 2021-1 Class A Notes, the Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2021-2 (the Series 2021-2 Class B Notes, collectively with the Series 2021-1 Class B Notes, the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2021-2 (the Series 2021-2 Class C Notes, collectively with the Series 2021-1 Class C Notes, the Class C Notes)

The Notes are denominated in U.S. dollars. A cross-currency swap is in place for Series 2021-1 and a cross-currency interest rate swap is in place for Series 2021-2.

The Expected Final Payment Date is October 26, 2026 for Series 2021-1 and the Expected Final Payment Date is October 26, 2023 for Series 2021-2.

DBRS Morningstar considered the following factors in its analysis, each of which includes additional analysis and, where appropriate, adjustments to expected performance assumptions as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19). For the ratings assigned, DBRS Morningstar’s analysis considered the baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect DBRS Morningstar’s view that, although the coronavirus remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but they remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to the coronavirus may nonetheless bring other risks to the forefront in the coming months and years. For details see https://www.dbrsmorningstar.com/research/384150.

(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) Principal payment rates and gross yields have remained strong since Trust inception, averaging 43% and 25%, respectively. The three-month average principal payment rate and gross yield stood at 56.4% and 26.8%, respectively, as of September 2021. Although three-month average loss rates increased in 2016 as a result of weaker performance in Alberta and spiked to a high of 6.0% in February 2017 because of a one-time cleanup of a backlog in charging off bankrupt accounts, they have since come down to 1.7% as of September 2021. Delinquencies have also trended down since the beginning of 2017.

(5) The receivables 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 principal 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.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 4, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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