DBRS Morningstar Confirms Ratings on Canadian Credit Card Trust II

DBRS Limited (DBRS Morningstar) confirmed the ratings on the outstanding notes (the Notes) issued by Canadian Credit Card Trust II as follows as 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 2020-1 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2020-1 at A (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2020-1 at BBB (sf) (collectively, the Series 2020-1 Notes)

-- Credit Card Receivables-Backed Class A Notes, Series 2021-1 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2021-1 at A (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2021-1 at BBB (sf) (collectively, the Series 2021-1 Notes)

The rating confirmations are based on the following factors as of January 2023:

(1) The Notes benefit from series-specific cash collateral accounts, which could build up to 5.0% of the initial invested amount. For AAA (sf)-rated and A (sf)-rated notes, credit enhancement is also available through subordination of 5.75% and 2.75%, respectively. The Series 2020-1 and 2021-1 Notes benefit from excess spread of 23.3%.

(2) The three-month average payment rate has continued to grow and was reported at 68.0% compared with 65.3% as at January 2022. The three-month average annual gross yield remained strong at 27.5%. The portfolio has seen an increased percentage of transactors (cardholders who pay their entire balance in full each month) in recent years and 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.

(3) Three-month average net losses have remained low at 2.6%. Prior to the Coronavirus Disease (COVID-19) pandemic, the three-month average loss rate averaged 3.6% in 2019.

(4) The portfolio is composed of certain credit cards originated, managed, and designated by the National Bank of Canada (rated AA and R-1 (high) with a Stable trend by DBRS Morningstar).

The performance and characteristics of the trust pool and the Notes are available and updated each month in DBRS Morningstar’s “Monthly Canadian ABS Report.” 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, as well as 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodology applicable to the ratings is Master Canadian Structured Finance Surveillance Methodology (December 13, 2022; https://www.dbrsmorningstar.com/research/407359).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

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.

DBRS Limited
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Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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