Research: Rating Action: Moody’s Assigns Final Ratings to Master Credit Card Trust II, Series 2022-5 ABS

Toronto, October 20, 2022 — Moody’s Investors Service (Moody’s) has assigned a definitive rating of Aaa (sf) to the Class A Notes, a definitive rating of A1 (sf) to the Class B Notes and a definitive rating of Baa2 (sf) to the Series 2022-5 Class C Notes issued by Master Credit Card Trust II, (the Trust), sponsored by Bank of Montreal (BMO, long term deposits/senior long term unsecured Aa2 stable, long term CR rating Aa2(cr), short-term deposition P-1 and BCA a3). Moody’s also announced today that the issuance of the Series 2022-5 Notes will not, per se and from that time, result in the downgrading or withdrawal of the ratings assigned to any class of outstanding securities issued by the trust.

Moody’s rating actions are as follows:

Issuer: Master Credit Card Trust II, Series 2022-5

$1,000,000,000 Trust II Ser. 2022-5 Category A floating rate notes, final rating assigned Aaa (sf)

$21,164,000 Trust II Ser. 2022-5 Category B fixed rate notes, final rating assigned A1 (sf)

$37,037,000 Trust II Ser. Fixed rate bonds of category C 2022-5, final rating assigned Baa2 (sf)

RATINGS RATIONALE

Ratings are based on the quality of the underlying credit card receivables, BMO’s expertise as securitizing agent, legal and structural protections of the transaction, including early amortization trigger events, credit enhancement provided by subordinated Class B and Class C notes in 2022-5, and the likelihood that the sponsor will become insolvent and close its credit card portfolio. Moody’s assesses this probability based on the sponsor’s counterparty risk assessment (CR assessment).

Class A Notes represent 94.50% of the total issue, Class B Notes represent 2.00% and Class C Notes represent the remaining 3.50%. All classes of notes were issued in US dollars. Class A will have a floating rate coupon indexed to compound SOFR plus 1.35% while Class B and C will have fixed rate coupons of 6.35% and 7.32% per annum, respectively. The Trust has minimized the risk of interest rate and currency mismatches by entering into a currency and interest rate swap agreement related to the Notes, with BMO as counterparty to the swap.

The expected maturity date of the securities is October 22, 2029 and their legal maturity is April 21, 2031.

The assets of the trust consist of credit card receivables issued and serviced by BMO.

Summary of analytical results

Moody’s Aaa LGSD and Aaa CE are 20.0% and 5.4% respectively for this transaction. The Aaa LGSD reflects Moody’s expectations for the performance of the trust following the default of a sponsor and the closure of the portfolio. The Aaa CE reflects the level of credit enhancement consistent with an Aaa (sf) rating discounted from the Aaa LGSD based on the sponsor’s CR rating.

Methodology underlying the rating action:

The main methodology used in these ratings was “Moody’s Approach to Rating Credit Card Receivables-Backed Securities” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390486. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of ratings:

At the top

Moody’s may raise the ratings of the Class B and/or Class C notes if our expectations of the performance of the trust following a default of the sponsor and the closing of the portfolio (i.e. the rate or yield increases. A decrease Moody’s assessment of the sponsor’s likelihood of closing its credit card portfolio, typically reflected in an upgrade to the sponsor’s corporate responsibility rating, could also lead to a ratings upgrade Class B and/or Class C tickets.

Down

Moody’s may downgrade the ratings of the Class A, Class B and/or Class C Notes if our expectations regarding the performance of the Trust following Sponsor Default and Portfolio Closure (i.e. Aaa LGSD) deteriorate significantly, particularly if the write-off rate increases or the payout rate or yield drops. A downgrade in the sponsor’s CR rating could also lead to a downgrade in the ratings of the Class A, Class B and/or Class C Notes.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Moody’s has not received or considered any third party due diligence assessment(s) regarding the underlying financial assets or instruments (the “Due Diligence Assessment(s)”) in this action. credit rating.

The due diligence assessment(s) referenced herein were prepared and produced solely by parties other than Moody’s. Although Moody’s uses due diligence assessments only to the extent that Moody’s believes them to be reliable for the purpose of its intended use, Moody’s does not independently audit or verify any information or procedures used by third parties. due diligence providers in preparing the due diligence appraisal or appraisals and makes no representations or warranties, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for a particular purpose of due diligence valuation or valuations.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1345905.

To rate this transaction, Moody’s uses a cash flow model to determine the collateral loss under a maximum stress scenario. Secondly, Moody’s discounts this collateral loss according to the credit quality of the sponsor. Finally, Moody’s compares the available credit enhancement with the collateral loss haircut, taking into account loss allocation and other structural characteristics, to determine the rating indicated by the model for each instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Aliya Ehmar
Assistant Vice President – Analyst
Structured Finance Group
Moody’s Canada Inc.
70 York Street
Office 1400
Toronto, Ontario M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Richard Hunt
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Canada Inc.
70 York Street
Office 1400
Toronto, Ontario M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653