Canadian Imperial Bank of Commerce is issuing the first credit card securitization denominated in U.S. dollars in almost three years.
The CARDS II Trust, Series 2015-2 will issue two, as-yet unsized tranches of notes: a senior tranche denominated in U.S. dollars and rated Aaa’ by Moody’s Investors Service; and a subordinated tranche in Canadian dollars rated 'Baa1'.
The last U.S. dollar demoninated from CIBC was completed in September 2012.
The CARDS II collateral consists of a well-seasoned pool of predominantly prime credit card receivables, comparable to other Canadian credit card trusts, according to Moody’s Investors Service.
As of 31 May 2015, the average principal balance of the accounts in the pool was $2,296 Canadian.
CIBC’s Aerogold and Aventura VISA accounts constitute a substantial portion of the receivables, even following the removal of $3.2 billion of Aerogold receivables in November 2013. The Aerogold VISA card rewards customers with Aeroplan miles, which they can use for a variety of travel and non-travel related rewards. The Aventura VISA card allows customers to use points for a variety of travel and non-travel related rewards. The Aerogold and Aventura VISA accounts have consistently high payment rates that are higher than the pool average.
Almost 49% of the balance of the CARDS II portfolio is represented by card accounts that have limits in excess of $20,000, which is high relative to other Canadian credit card trusts, although the 79% of the balance of CARDS II accounts represented by card accounts that have limits in excess of $10,000 is generally in line with most U.S. credit card master trusts.
In its presale report, Moody’s noted that a higher average open-to-buy poses incremental credit risk to trust performance, as cardholders under financial duress tend to use up their unused credit lines.
Among other risk factors, according to Moody’s is the fact that consumer debt in Canada is at a historical high, 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 report states.
Although not obligated to do so, CIBC provided additional credit enhancement to the outstanding series of Class A and Class B notes by issuing new subordinated Enhancement Notes in September 2013, following the announcement of a proposal to remove certain Aerogold accounts from the custodial pool. Moody’s does not account for any explicit support from the seller-servicer when determining its ratings. However, “coming to the aid” is indicative of the seller-servicer’s commitment to the ABS program.
The portfolio has a concentration in Ontario, where approximately 44% of the receivables were originated. “This is typical of a nationally diversified Canadian credit card portfolio given Ontario’s population is almost 40% of the population of Canada, followed by Quebec at 23%, British Columbia at 13%, and Alberta at 12%,” the report states.