The Master Credit Card Trust II program is returning to the asset-backed securities (ABS) market, to raise $400.1 million from the market, in a deal that will offer both fixed- and floating-rate notes to investors.
Known as MCCT II, series 2023-2, the transaction will offer notes to investors through three classes of notes and repay investors through a senior-subordinate structure, according to a pre-sale report from Fitch Ratings. Bank of Montreal will sell the receivables to the trust, and service the notes issued from it, according to Fitch.
BMO Capital Markets, Barclays Capital and J.P. Morgan Securities are lead underwriters on the deal, which is organized under rule 144a, the rating agency said. While none of the assets have any exposure to the Secured Overnight Financing Rate (SOFR), the class A notes do. Class B and C notes feature fixed-rate notes, according to the rating agency.
As far as credit outlooks from the underlying assets, some of the recent performances cancel each other out, amounting to a neutral credit impact on the notes, Fitch said. Over the past 12 months the trust saw some normalization of delinquencies and charge-off performances. Overall trust performance, however, remained within Fitch's steady stated assumptions. For instance, in the April 2023 collection period, 60 days-plus net chargeoffs and delinquencies of rose to 2.91% and 1.26%, respectively. Monthly payment rates slowed to 47.03%, compared with 56.89% one year earlier.
Inflationary pressures and rising interest rates will continue to influence an unstable macroeconomic environment, prompting Fitch to expect asset performance for Canadian credit card ABS to diminish from historically strong levels seen in 2022.
Fitch expects to assign ratings of 'AAA' to the $500 million, class A notes, the bulk of the deal and the SOFR notes. Classes B and C should receive ratings of 'AA' and 'BBB', respectively. All of the series of notes have the same termination date of January 21, 2027, according to Fitch.
