DBRS Morningstar Finalizes Provisional Ratings of AAA (sf), A (sf), and BBB (sf) on Trillium Credit Card Trust II, Series 2023-3

DBRS Limited (DBRS Morningstar) finalized its provisional ratings on Series 2023-3 (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 2023-3 (the Class A Notes)
-- A (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2023-3 (the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2023-3 (the Class C Notes)

The Notes are denominated in U.S. dollars. A cross-currency interest rate swap is in place for Series 2023-3.

Series 2023-3 has an Expected Final Payment Date of August 26, 2025.
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 51% and 26%, respectively. The three-month average payment rate and gross yield stood at 63.9% and 27.1%, respectively, as of June 30, 2023. Three-month average losses continued to remain lower compared with pre-pandemic loss rates and stood at 2.0% as of June 30, 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.

DBRS Morningstar’s credit ratings on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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/416784 (July 4, 2023).

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

The principal methodology applicable to the credit 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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit 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 credit 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 20, 2023; https://www.dbrsmorningstar.com/research/416101)

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

Derivatives Criteria for Canadian Structured Finance (June 16, 2023; https://www.dbrsmorningstar.com/research/415974)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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