Fitch Ratings is expected to give stable ratings to Canada’s Golden Credit Card Trust’s credit card receivables-backed offering (series 2022-3) — which includes class A notes offered in U.S. dollars via Rule 144A and class B and C notes issued in Canadian dollars.
Royal Bank of Canada, rated AA–/F1+/Stable by Fitch, will serve as seller, promoter, servicer, swap counterparty and administrative agent of the securitization.
The GCCT Series 2022-3 capital structure contains Class A notes with AAAsf expected rating, 6.50% + reserve account/credit enhancement and 7/15/31 legal final maturity date; Class B/Asf, 2% + reserve account/credit enhancement and 7/15/31 LFM; C/BBB+sf no credit enhancement beyond reserve account and 7/15/31 LFM.
Initially, the Class A note coupon will be based on the USD Compounded Secured Overnight Financing Rate Index, “a relatively new interest rate index that is not yet widely established in the market,” but the benchmark may change as suggested by the final memorandum, according to Fitch analysts Connor Mitnick and Harry Kohl, who authored the report.
“The SOFR Series 2022-3 will consist of floating-rate class A notes, and fixed-rate class B and C notes. The trust will enter into swap agreements to offset interest rate and currency mismatches between the notes and receivables. The transaction will include a USD/CAD cross-currency and float/fixed interest rate swap for class A notes,” the report notes.
However, the issuance amount in U.S. dollars and the interest rate for each class have not been determined yet.
Interest rate risk mitigation is available to Class A notes via a 6.50% credit enhancement, resulting from 4.50% subordination of class B notes and 2% subordination of class C notes in addition to reserve account if excess spread falls to or below 4%, Fitch analysts wrote. While Class B notes benefit from a 2.00% subordination of Class C notes and the reserve account, and Class C notes receive only reserve-account support.
Noteholders will receive monthly interest payments starting on Aug. 15, 2022.
Fitch’s 2022 Canadian credit card asset-backed-securities performance and rating outlooks are neutral. The market has been more resilient than initially expected “showing improved performance across charge-offs, delinquencies, [monthly payment rates] and yields,” according to the report.
Furthermore, Fitch finds geopolitical shocks have fueled demand for Canada’s exports leading the Bank of Canada to raise interest rates “more aggressively than expected,” and to start quantitative tightening in April, “running down its medium- and long-term securities holdings as they mature.”
The expected transaction outlook is stable. Ratings include assessments of the collateral quality, credit enhancement, RBC’s underwriting and servicing capabilities and the transaction’s financial legal structures, which according to the report employ early amortization triggers and use cross-currency and interest rate swaps.
The underlying collateral characteristics such as credit quality, seasoning, geographic concentration, delinquencies and card utilization rates over the past 12 months show “the trust has remained strong,” particularly when compared with pre-pandemic data, analysts wrote.
As of the May 2022 collection period, compared a year prior net charge-offs decreased to 1.42%, from 1.57%; 60+ day delinquencies reached 1%, slightly down from 1.01%; the monthly payment rate was 74.56%, up from 63.23%.
