Backed by credit card receivables and offered in the United States through Rule 144a, the Golden Credit Card Trust is planning to float asset-backed securities to a range of investors, including those in the U.S.
Royal Bank of Canada is the administrative agent on the deal. The exact dollar amount of notes was not immediately available, because the deal will be sized based on market demand, according to market observers.
Fitch Ratings did note, however, that the portfolio had about CAD$9 billion ($7.1 billion) in average receivables outstanding.
The three tranches of ABS that will be offered to U.S. investors come from a pool that Fitch Ratings says has seen an improvement in performance over the past year. This parallels trends that are underway among Canadian credit card indices.
As of July 2021, the net charge offs on a trailing 12-month basis stood at 1.45% for the accounts in the pool, compared with 2.39% at the same period in 2020, Fitch said. All of the collateral is fixed rate, and none of rated notes are benchmarked on the Libor.
The portfolio is highly seasoned, as none of the card accounts had been originated in the past five years, according to Moody’s Investors Service. The rating agency counted this as a credit strength, saying cardholders who have been making payments for longer periods of time have lower likelihoods of future defaults.
Also, cardholders have been making higher principal payments in 2021 than in 2020. On an average monthly basis, cardholders paid 52.6% of outstanding balances in 2020, up from 51.0% in 2019. Moody’s notes that the payment rate on Golden Credit Card Trust’s underlying portfolio is among the highest in its peer group, which includes the BMO MCCT II, and the CIBC Cards II Trust. It was also stable through out the COVID-19 induced recession.
The total percentage of receivables that were delinquent by 91 days or more was 0.54%, according to Fitch.
The pool is not invulnerable, however, Moody’s notes, as RBC could decide to add receivables from other credit card accounts. Should those newer accounts be of lesser credit quality, the average receivable credit quality will deteriorate.
Consumer debt in Canada is also near historically high levels. Consumer obligation accounts are more vulnerable to higher market interest rates, potentially resulting in more personal bankruptcies and higher consumer credit losses.
Fitch and Moody’s are expected to assign ‘AAA’ ratings to the class A tranche; plus ‘A’ ratings to the class B certificates; and ‘BBB’ to the class C.
