The Royal Bank of Canada is preparing to issue about $814 million in asset-backed securities collateralized by pools of both U.S. and Canadian-dollar backed credit card receivables through the Golden Credit Card Trust, 2023-1.
The deal is the first of the year for the Golden Credit Card Trust program.
Slated to close in mid-April, Golden Credit, 2023-1, will garner ratings from both Fitch Ratings and Moody's Investors Service on the three classes of notes. Moody's will only rate the class A, Canadian dollar notes, according to its pre-sale report about the deal, while Fitch says it will assign ratings to all three classes of notes.
RBC originated the pool of receivables and will service the notes. Its status as a highly rated sponsor bank, as well as the deal's structure and the program's performance history over the past 12 months influenced the deal's generally positive credit ratings drivers, according to the rating agencies. As of the February 2023 collection period, delinquencies over the 60-day range were 1.10%, a decrease from 1.17% a year before.
Yet the overall credit picture was mixed. Golden Credit Card Trust also demonstrated higher net chargeoffs of 1.71% in the February collection period, up noticeably from 1.30% a year before, according to Fitch Ratings. Further, the transaction has permission to add future accounts to the collateral pool during the accumulation period, a provision that could potentially weaken the deal's performance.
Moody's also noted that the Golden Credit Card program faces credit card sector challenges, such as generally high levels of consumer debt in Canada. In another credit challenge, RBC added a new feature to the consumer credit cards more than a year ago that lets consumers choose an installment option for large purchases made through their credit cards under their existing card limits.
"The installment portion of the card receivables bears interest at a lower fixed rate compared with revolving receivables," according to the rating agency's report. Should consumers continue to use the feature, Moody's said, it could adversely impact its payment rate and yield assumptions.
Both Moody's and Fitch assigned triple-A ratings to the class A notes, according to their reports. Fitch went on to assign ratings of 'A' to the class B notes and 'BBB+' to the class C notes.
Classes A and B benefit from initial credit enhancement levels of 6.50% and 2.00%, plus R.A., respectively, according to Fitch.
