Canadian Imperial Bank of Commerce is coming to the market with its second series of notes this year backed by Canadian credit card receivables.
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DBRS Morningstar says CIBC's notes, which will be issued under Rule 144A in the U.S., are expected to be denominated in U.S. dollars. A cross-currency interest rate swap is expected to be in place for the class A notes, and cross-currency swaps are expected to be in place for the class B and class C notes, it says.
CARDS II Trust, Series 2023-2 is raising US$431.27 million through a class A floating-rate and class B and C fixed-rate notes. The closing date is July 31, and the notes have final legal maturity dates of July 2028.
As of May 31, 2023, the CARDS II Trust's receivables pool balance comprised CA$9.8 billion ($7.4 billion) of Visa credit card receivables originated by CIBC, with 4,268 accounts holding an average balance of CA$2,285 ($1,736). Average daily receivables outstanding totaled CA$8.37 billion ($6.36 billion) as of May 31, 2023, according to DBRS.
DBRS said the receivables pool is a well-diversified, seasoned portfolio and one of the largest in Canada. Only 1% of the portfolio have a credit score of under 560 or no score, while 72.9% have credit scores of over 700, it said.
With the issuance of the series 2023-2 notes, there will be seven series outstanding in CARDS II, with the most recent issue, 2023-1, raising US$1.2 billion in January 2023. Performance for the CARDS II trust remained stronger than pre-pandemic levels, with net chargeoffs showing early signs of normalization from the recent lows, Fitch Ratings said. As of the May 2023 collection period, gross yield remained relatively stable at 24.78%, up from 24.49% a year prior, Fitch said. Net chargeoffs increased to 1.90% from 1.25% a year earlier but remain notably below pre-pandemic levels.
The overall performance of the portfolio has been strong and remains better than historical levels prior to the pandemic, DBRS said.
Credit enhancement will be available for the class A notes through subordination of 7.25% (4.25% class B notes and 3% class C notes), excess spread, and the series-specific cash reserve account, which could build up to 5% of the initial invested amount, DBRS said. For the class B notes, credit enhancement will be provided by subordination of 3% (the class C notes), excess spread, and the series-specific cash reserve account. For the class C notes, credit enhancement will be available through excess spread and the series-specific cash reserve account.
DBRS and Fitch have both provisionally rated the class A notes as AAA and class C as BBB. Fitch has provisionally rated the class B notes as A, while DBRS has provisionally assigned A high to these notes.
