Morningstar DBRS Confirms Credit Ratings on Canadian Credit Card Trust II

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on the outstanding notes (the Notes) issued by Canadian Credit Card Trust II as follows as part of Morningstar DBRS’ continued effort to provide timely credit rating opinions and increased transparency to market participants:

-- 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 credit rating confirmations are based on the following factors as of January 2024:

(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 2021-1 Notes benefit from excess spread of 22.7%.

(2) The three-month average payment rate has been stable and was reported at 66.6% compared with 68.0% as at January 2023. The three-month average annual gross yield remained strong at 27.7%. 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 returned to levels seen prior to the coronavirus pandemic but continue to be low at 3.5%.

(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 Morningstar DBRS).

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

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

The principal methodology applicable to the credit ratings is Master Canadian Structured Finance Surveillance Methodology (June 7, 2023), https://dbrs.morningstar.com/research/415503.

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

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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.

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://dbrs.morningstar.com/about/methodologies.

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

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.