Morningstar DBRS Finalizes Provisional Credit Ratings on CARDS II Trust, Series 2025-1

DBRS Limited (Morningstar DBRS) finalized its provisional credit ratings on the Credit Card Receivables-Backed Notes, Series 2025-1 (the Notes) issued by CARDS II Trust (the Trust) as follows:

-- AAA (sf) on the Credit Card Receivables-Backed Class A Notes, Series 2025-1 (the Class A Notes)
-- A (high) (sf) on the Credit Card Receivables-Backed Class B Notes, Series 2025-1 (the Class B Notes)
-- BBB (sf) on the Credit Card Receivables-Backed Class C Notes, Series 2025-1 (the Class C Notes)

The Notes are denominated in U.S. dollars. Cross-currency swaps are in place for the Notes.

The Targeted Principal Distribution Date of the Notes is March 15, 2028.

Morningstar DBRS considered the following factors in its analysis:

(1) For the Class A Notes, credit enhancement (CE) is available through subordination of 7.25% (4.25% Class B Notes and 3.00% Class C Notes), excess spread, and the series-specific cash reserve account, which could build up to 5% of the initial invested amount.

(2) For the Class B Notes, CE is provided by subordination of 3.00% (the Class C Notes), excess spread, and the series-specific cash reserve account.

(3) For the Class C Notes, CE is available through excess spread and the series-specific cash reserve account.

(4) Portfolio performance remains strong with three-month average payment rates and gross yields averaging approximately 55% and 24%, respectively, over the past three years. Three-month average losses continue to remain lower compared with pre-pandemic loss rates and stood at 2.1% as of February 28, 2025. 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 well-diversified, seasoned portfolio and is one of the largest in Canada.

Morningstar DBRS stress testing indicates that simultaneous declines in yield and payment rates and increases in losses would not result in a failure of the Trust in repaying the Notes on a timely basis. The severity of the tests applied is commensurate with the respective ratings of the Notes.

Morningstar DBRS' analysis also indicates that the Class B Notes are expected to withstand more punitive stress multiples for requested rating categories, warranting a (high) designation and resulting in an A (high) (sf) rating.

Morningstar DBRS notes that the program fees and expenses (which could include indemnity payments) that are payable to the financial services agent are not subordinated to payments to Noteholders, as expected in Morningstar DBRS' "Legal and Derivatives Criteria for Canadian Structured Finance." Morningstar DBRS will monitor the monthly servicer reports, and to the extent that these fees and expenses may affect payments to Noteholders, Morningstar DBRS will review and take appropriate rating actions, if necessary.

Morningstar DBRS also notes that a true sale opinion in respect of the co-ownership interests in any accounts that may be added may not be delivered at the time of each account addition, as expected in Morningstar DBRS' "Legal and Derivatives Criteria for Canadian Structured Finance." Morningstar DBRS considers the risk minimal as additional accounts are transferred to the Custodian infrequently, an officer's certificate is provided by the Seller in connection with each additional account transfer, and a true sale opinion in respect of the co-ownership interests in any accounts that may be added will be delivered every six months for any additions made within the previous six months.

Morningstar DBRS' credit ratings on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related principal and interest amounts.

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

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental, Social, or Governance 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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

The principal methodology applicable to the credit rating is Rating Canadian Credit Card and Personal Line of Credit Securitizations https://dbrs.morningstar.com/research/441733 (October 24, 2024).

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

The Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://dbrs.morningstar.com/research/444924.

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 Trust or Canadian Imperial Bank of Commerce, in its capacity as Financial Services Agent of the Trust, 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 Trust or the Financial Services Agent 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 Research below or by contacting us at info-DBRS@morningstar.com.

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.

Operational Risk Assessments for Canadian Structured Finance (March 28, 2025; https://dbrs.morningstar.com/research/450831)

Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024; https://dbrs.morningstar.com/research/437761)

A description of how Morningstar DBRS analyzes 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.