Backed by credit card debt and offered in the United States through Rule 144a, the Golden Credit Card Trust plans to issue asset-backed securities to a range of investors, including those in the United States. United.
The Royal Bank of Canada is the administrative agent for the transaction. The exact dollar amount of the notes was not immediately available, as the deal will be sized based on market demand, according to market watchers.
Fitch Ratings noted, however, that the portfolio had about C $ 9 billion ($ 7.1 billion) in bad debts on average.
The three tranches of ABS that will be offered to US investors come from a pool that Fitch Ratings said has seen improved performance over the past year. This is consistent with the current trends among Canadian credit card indexes.
In July 2021, rolling 12-month net charges stood at 1.45% for pool accounts, up from 2.39% in the same period in 2020, Fitch said. All guarantees are at a fixed rate and none of the rated notes are referenced on Libor.
The wallet is very experienced, as none of the card accounts had been created in the past five years, according to Moody’s Investors Service. The rating agency viewed this as a credit force, saying cardholders who have been making payments for longer periods of time are less likely to default.
Additionally, cardholders made higher principal payments in 2021 than in 2020. On an average monthly basis, cardholders paid 52.6% of unpaid balances in 2020, up from 51.0% in 2019. Moody’s notes that the payment rate on the underlying Golden Credit Card Trust portfolio is among the highest of its peer group, which includes the BMO MCCT II and the CIBC Cards II Trust. It has also been stable throughout the COVID-19-induced recession.
The total percentage of receivables 91 days or more past due was 0.54%, according to Fitch.
The pool is not invulnerable, Moody’s notes, however, as RBC may decide to add receivables from other credit card accounts. If these new accounts are of lower credit quality, the average credit quality of the receivables will deteriorate.
Consumer debt in Canada is also close to historically high levels. Consumer bond accounts are more vulnerable to higher market interest rates, which could lead to 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 for Class B certificates; and ‘BBB’ to class C.