Bank of Montreal is tapping the U.S. securitization market with a credit card deal for the first time this year, according to Moody’s Investors Service.

The deal, Master Credit Card Trust II (MCCT II) 2016-1, has yet to be sized, nor has the maturity been determined; it will consists of three tranches of notes: Moody’s plan to assign an Aaa rating the senior class A notes; Aa3 to the class B notes; and Baa1 to the class C notes.   

JPMorgan, BMO Capital Markets, and Citigroup are the lead underwriters.

The notes will be backed by predominantly prime-quality, Canadian credit card receivables originated by Bank of Montreal.

Among the strengths of the deal, according to Moody’s, are the experience of the servicer, the high seasoning of the credit card receivables, and a relatively high principal payment rate. BMO has more than 40 years’ experience originating and servicing credit card receivables, and as of  Jan. 31, 2016, had approximately Canadian $7.9 billion in outstanding credit card receivables. It has also been securitizing credit card receivables since 1997.

The pool is well seasoned, with over 50% of accounts originated more than ten years ago, and only 27.1% of accounts originated in the last five years. This is a credit strength because cardholders who have been making payments on their cards for a long period of time are less likely to default in the future.

The trust’s average monthly payment rate for 2015 was 46.4%, which was higher than the average for the Canadian market as shown in Moody's Canadian Credit Card Index, and was stable throughout the recession. “The high payment rate is indicative of high credit quality obligors who use the cards more for convenience than credit,” the presale report states.

Credit challenges include the potential for weaker performance following future account additions and generally high levels of consumer debt in Canada, which makes Canadian consumer loan obligors increasingly vulnerable to higher market interest rates. “A sudden interest rate shock could result in more personal bankruptcies and higher consumer credit losses,” the presale report states.

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