DBRS Morningstar Confirms Ratings of CARDS II Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings of all outstanding notes (the Notes) issued by CARDS II Trust (the Trust), as listed below. The confirmations are part of DBRS Morningstar’s continued efforts to provide timely credit rating opinions and increased transparency to market participants.

-- Credit Card Receivables-Backed Class A Notes, Series 2019-2 at AAA (sf)
-- Credit Card Receivables-Backed Class B Notes, Series 2019-2 at A (sf)
-- Credit Card Receivables-Backed Class C Notes, Series 2019-2 at BBB (sf)

-- 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)

DBRS Morningstar initially published its outlook on the Coronavirus Disease (COVID-19) pandemic’s impact on key economic indicators for the 2020–22 time frame in April 2020. DBRS Morningstar last updated the macroeconomic scenarios on June 18, 2021, in its “Global Macroeconomic Scenarios - June 2021 Update” at https://www.dbrsmorningstar.com/research/380281. For the Notes, DBRS Morningstar considered impacts consistent with the moderate scenario in the referenced commentary in its analysis. The rating actions are based on the following factors as of June 2021:

(1) The Notes benefit from excess spread, which has been in the range of 15.0% to 19.3% over the last 12 months, and series-specific cash reserve accounts that could build up to 5.0% of the initial invested amount if the three-month average excess spread falls to or below 1.5%.

(2) The AAA (sf)-rated Class A notes and the A (sf)-rated Class B Notes benefit from subordination equivalent to 7.25% and 2.50%, respectively.

(3) Average payment rates have improved, increasing to 52.2% as of June 2021 and an average of 45.8% over the last 12-months. This is up from a Q2 2020 average of 35.5%. Gross yields have also rebounded to 24.1% as of June 2021 and an average of 22.4% over the last 12 months, up from 20.3% in Q2 2020. The periods noted are not directly comparable as receivables were removed and added to the custodial pool in August 2020.

(4) Government provided financial relief and payment relief programs offered by The Canadian Imperial Bank of Commerce (CIBC; rated AA with a Stable trend by DBRS Morningstar) contributed to overall lower losses. Net losses have remained low from June 2020 onwards and have averaged 79 basis points over the last 12 months.

(5) CIBC is experienced in managing one of the largest credit card portfolios in Canada.

The performance and characteristics of the custodial pool and the Notes are available and updated each month in DBRS Morningstar’s Monthly Canadian ABS Report. DBRS Morningstar conducts a monthly stress testing of each rated class of the Trust, with the results indicating that simultaneous declines in yield and payment rates and 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.

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/373262.

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

The principal methodology is Master Canadian Structured Finance Surveillance Methodology (June 7, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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

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