DBRS Morningstar Assigns Ratings of AAA (sf), AA (sf), and BBB (sf) to Master Credit Card Trust II, Series 2022-3

DBRS Limited (DBRS Morningstar) assigned ratings to the Credit Card Receivables-Backed Notes, Series 2022-3 (the Notes) issued by Master Credit Card Trust II (the Trust) as follows:

-- AAA (sf) to the Credit Card Receivables-Backed Class A Notes, Series 2022-3 (the Class A Notes)
-- AA (sf) to the Credit Card Receivables-Backed Class B Notes, Series 2022-3 (the Class B Notes)
-- BBB (sf) to the Credit Card Receivables-Backed Class C Notes, Series 2022-3 (the Class C Notes)

As the Notes represent part of the seller’s interest in the credit card receivables pool, the rating on the Class A Notes is an opinion on the risk that the Trust will fail to satisfy its financial obligations with respect to the Class A Monthly Interest and the Class A Allocated Amount as defined in the Series 2022-3 Supplement.

DBRS Morningstar considered the following factors in its analysis:

(1) For the Class A Notes, credit enhancement is available through subordination of at least 5.5%; excess spread; and the Cash Collateral Account, which could build up to 5.0% of the Maximum Allocated Amount (as defined in the Series 2022-3 Supplement).

(2) For the Class B Notes, credit enhancement is available through subordination of at least 3.5%, excess spread, and the Cash Collateral Account.

(3) For the Class C Notes, credit enhancement is available through excess spread and the Cash Collateral Account.

(4) Over the past three years, three-month average principal payment rates and gross yields have been strong, averaging about 51% and 26%, respectively. Three-month average principal payment rates and gross yields have trended higher since the second half of 2020 compared with levels prior to the Coronavirus Disease (COVID-19) pandemic, standing at 58.5% and 26.8%, respectively, as of January 2022. Three-month average losses were 2.8% over the past three years and have remained lower compared with pre-pandemic loss rates, standing at 1.7% as of January 2022. The overall performance of the portfolio has been strong and trending better than historical levels prior to the pandemic.

(5) The receivables pool is a well-diversified and seasoned pool managed by Bank of Montreal (rated AA with a Stable trend by DBRS Morningstar). The Bank of Montreal, as the seller, offers a successful loyalty program and has the experience and demonstrated ability to manage the largest Mastercard portfolio in Canada.

DBRS Morningstar stress testing indicates that simultaneous declines in yield and payment rates and increases in losses would not result in a failure of the Trust in satisfying its financial obligations with respect to the Notes. The severity of the tests applied is commensurate with the respective ratings of the Notes.

DBRS Morningstar notes that the transaction documents do not require the remittance of collections into a Trust account within two business days when the servicer is no longer rated investment grade, as expected in DBRS Morningstar’s “Legal Criteria for Canadian Structured Finance.” Should the servicer be downgraded to below investment grade, DBRS Morningstar will assess the impact of partial commingling at the time and take appropriate rating action.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
The principal methodology is Rating Canadian Credit Card and Personal Line of Credit Securitizations (November 1, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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