DBRS Morningstar Finalizes Provisional Ratings of AAA (sf), A (sf), and BBB (sf) on Trillium Credit Card Trust II, Series 2023-1 and Series 2023-2

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on Series 2023-1 and Series 2023-2 (collectively, the Notes) issued by Trillium Credit Card Trust II (the Trust):

-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2023-1 (the Series 2023-1 Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2023-1 (the Series 2023-1 Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2023-1 (the Series 2023-1 Class C Notes)
-- AAA (sf) on the Credit Card Receivables-Backed Floating Rate Class A Notes, Series 2023-2 (the Series 2023-2 Class A Notes, collectively with the Series 2023-1 Class A Notes, the Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2023-2 (the Series 2023-2 Class B Notes, collectively with the Series 2023-1 Class B Notes, the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2023-2 (the Series 2023-2 Class C Notes, collectively with the Series 2023-1 Class C Notes, the Class C Notes)

The Notes are denominated in U.S. dollars. A cross-currency interest rate swap is in place for both Series 2023-1 and Series 2023-2.

Series 2023-1 has an Expected Final Payment Date of March 27, 2028. Series 2023-2 has an Expected Final Payment Date of March 26, 2030.

DBRS Morningstar considered the following factors in its analysis:

(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 will be 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) Payment rates and gross yields have been strong since Trust inception, averaging approximately 50% and 26%, respectively. The three-month average payment rate and gross yield stood at 63.8% and 26.6%, respectively, as of February 28, 2023. Three-month average losses continued to remain lower compared with pre-pandemic loss rates and stood at 1.8% as of February 28, 2023. Overall performance of the portfolio has been strong and remains better than historical levels prior to the coronavirus pandemic.

(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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance 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 Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 1, 2022; https://www.dbrsmorningstar.com/research/404530).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity. The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action. This is a solicited credit rating.

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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
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.

Legal Criteria for Canadian Structured Finance (June 22, 2022; https://www.dbrsmorningstar.com/research/398729)

Operational Risk Assessments for Canadian Structured Finance (April 4, 2023; https://www.dbrsmorningstar.com/research/412270/)

Derivatives Criteria for Canadian Structured Finance (June 22, 2022; https://www.dbrsmorningstar.com/research/398728)

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