Credit Card Programs in Canada:

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DBRS

Credit Card Programs

in Canada:

- An evaluation of the major programs

- Criteria used in evaluating Credit Card Programs

Walter Schroeder, CFA

Huston Loke

Jireh Wong

(416) 593-5577

Dominion Bond Rating Service Ltd.

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Table of Contents

Page

Retail Credit Card Programs in Canada

Retail Sponsored Plans 1

Bank Sponsored Programs vs. Retail Sponsored Plans 2

Overview 1998 Credit Card Programs 5

Canadian Credit Card Trust Canadian Tire Receivables Trust CARDS Trust

Eaton Credit Card Trust Luna Credit Card Trust Master Credit Card Trust Reliant Receivables Trust

Sears Canada Receivables Trust – 1992 Sears Canada Receivables Trust Superior Credit Card Trust Trillium Credit Card Trust York Receivables Trust II

Questions on Credit Card Programs in Canada 1-3

Credit Card-Backed ABS in Canada

Introduction and Background 1

Bank Sponsored Credit Card-Backed ABS

Program Comparison - Bank Credit Card Issues 2

Structure 2 Credit Enhancement 2 Payment Rate 3 Gross Yield 4 Losses 5 Excess Spread 6 Liquidity Facilities 7 Amoritization Triggers 7

Servicer Termination Events 8

Commingling 8

Repayment Method 8

Account Selection Criteria 8

Addition and Removal of Accounts 8

Cash Reserve Events and Accounts 9

Rating Approach - Credit Card Receivables Securitization

Seller 10

Historical Performance 11

Stress Testing 12

Structural Considerations 13

Tables - Eaton Credit Card, SCRT 1992, Canadian Tire Receivables Trust 15-18

Tables - CARDS Trust, Canadian Credit Card Trust, Master Credit Card Trust,

Superior Credit Card Trust, Luna Credit Card Trust 19-21

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DBRS

Retail Credit Card Programs in Canada

Retail Sponsored Plans

RATING CONSIDERATIONS

Strengths: Challenges:

• Department stores have held interest charges at 28.8% and gross yields remained high for bank sponsored programs

• Credit cards are extremely liquid with 16%-17% of outstandings repaid in each month (vs. 40% + for big banks)

• Well diversified portfolios geographically and by obligor

• Full bank line coverage for commercial paper in the event of market disruption, plus rapid cash repayment of balances results in good liquidity

• Some margin squeeze possible if funding costs rise

• Little volume growth in department store programs

• Legal opinions on structures not as clean as in auto receivables, due to the revolving structure

• Competition from U.S. banks (new) and Canadian banks is building

• Reductions in gross yields

• Enhancements still cover losses by at least 3 times

• Favourable loss rates

CREDIT CARD STRUCTURE

Strengths: (1) The interest charges on unpaid balances on credit cards at the department store level have held at 28.8% annualized for over thirty years, enabling gross yields to average well over 20%. (2) Credit card receivables are extremely liquid, with an average life below 6 months. The percentage of the portfolio collected in each month ranges from 17%-20%. (3) The portfolios of the Trusts are well diversified by obligor and geography. (4) The programs funded with short term debt are well covered with bank lines. There is full coverage of commercial paper with bank lines, although it should be noted that bank lines are for liquidity purposes only, and not credit enhancement. Bank lines will likely not be honoured if a credit event occurs. (5) The level of enhancements covers loss levels by over four times for most programs despite a recent rise in loss rates. This is good coverage and should improve over time. (6) Long term debt repayments are assured by accumulation accounts, which gather cash 6-12 months before the bullet maturity is due, to assure timely repayment, unless letter of credit or other support is attained instead. (7) Loss rates are stable in the 5% area.

Challenges: (1) The bulk of enhancements in credit cards comes from excess spreads, and excess spreads are not a certainty given competitive pressures. If prices charged on the cards come down or interest rates rise, spreads often become

squeezed, thereby reducing enhancement levels. (2) The extremely high repayment rate of credit cards is a problem, since they convert to cash so quickly that it is difficult to do a term issue. Accordingly, a revolving structure, where new credit card purchases occur on a regular basis, had to be created. It is more difficult to get a clean legal opinion on a revolving structure (common with credit cards) than it is from a pure, clean sale, as is the case with an amortizing pool of auto receivables. (3) Department store credit cards have had no rate change for over thirty years (28.8%). They have benefited in Canada from falling short term interest rates to the degree to which they are financed with short term debt. Any rise in funding costs would squeeze spreads as would downward pressure on credit card rates. For example, in the U.S., Sears charges only 21.9% on its credit cards vs. 28.8% in Canada. (4) Department store credit card programs are showing very little volume growth with pressure from VISA. (5) Department store credit cards have come under competitive pricing pressure from banks. Competitive pressure can only get worse.

LEGAL STRUCTURES

The different credit programs used different legal structures and mechanics, which ultimately give protection to the investor. The different structures can be described as follows:

The Master Trust Structure with specific credit card assignment. This structure (referred to as the U.S.A. method of credit card structures), was pioneered in the U.S. by Citibank and used in its Canadian program. Canadian Tire also used variations of this structure. Specific individual credit cards are identified and assigned to the Trust with their related receivables. The balances in the accounts change daily as credit cards are used. The amount of debt plus enhancements will establish how much of the security belongs to the senior

noteholders. There is an amount beyond this assigned to the Seller (usually at least 5%-10% of the pool balance) which signifies the Seller’s portion. (Also included are ineligible accounts.) This Seller’s portion swings up and down with seasonal surges in use of the cards. If it falls below limits, cash will accumulate in the Trust, and new receivables have to be found. Otherwise, the Trust would be in a net cash position, lowering excess spreads due to the negative carry on the cash. If use of credit cards surges, the Seller’s balances would rise dramatically. (The amount of the Seller Certificates funding the growth would rise). These Certificates rank pari passu with other senior debt. Thus, credit card receivables usually contain

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at least two undivided co-owners of the credit card receivables, the Sellers’ portion which varies, and the investors’ co-ownership interest. If several series of issues are completed, each series is entitled to their proportional share of the cash flow. A given series of debt can have different enhancement levels, can be short or long term, and can even have specific accounts with specific characteristics carved out and dedicated to the one specific series. The Master Trust structure, with specific credit card account assignments, offers better diversification per obligor, better geographic diversification, evens the “seasonal” characteristic of cash flow in different series, and is an improvement over the single seller stand-alone trust. Legal identification of the specific credit card receivables is attained by the specific credit card accounts assigned to the program at the start, or upon addition. Whatever balances are outstanding under that account are security for the Notes.

Co-ownership Structure – no specific credit card assignment. The co-ownership structure was used by Sears in Canada, mainly because its accounting systems at the time had difficulty in selecting and tracking specific credit card accounts which would be assigned to the Trust. The structure works very much the same way as a condominium owner who owns his share of the cash flow and expenses. SCRT has an undivided co-ownership interest in the portfolio of credit card receivables, which it shares with the Acceptance Company. All accounts are assigned to the portfolio, so the portion owned by Acceptance will swing with surges and falls in the portfolio.

The position of the acceptance Company somewhat resembles the Seller certificate approach of the U.S. programs. The advantages of this structure are the same diversification offered by the Master Trust. Also, there is no specific assignment of credit card accounts to a specific series, so administering the program is simple. However, the big disadvantage to the co-ownership structure used by Sears, is that each time enhancements change, a new Trust must be created (with all the attendant legal filings, maintenance and billing costs). Secondly, in the case of bankruptcy of the top Company, it is more difficult under the Sears program to identify specific ownership in accounts. That is why Sears must borrow under two separate Trusts.

General Trust Structure

Eaton’s used a general trust approach, where it sold receivables to the trust regularly from the portfolio of T. Eaton Acceptance. However, instead of assigning specific accounts with a Sellers’ certificate to control fluctuations in eligible receivables. Eaton’s had to engage in daily specific tagging. A computer program daily selected those receivables which were eligible and tagged such accounts randomly to cover the amount of debt plus enhancements. Each day, the specific security changed as people used and repaid their account balances. With this approach, no seller certificate was needed to handle surges or troughs in cash flow, but the administration of the program was tedious.

Bank Sponsored Programs vs. Retail Sponsored Plans

Bank Sponsored Programs Retail Sponsored Plans

• Gross yield lower 17%-18% vs. 24% • Yield averages 24%-25%

• Loss write-offs usually under 2%, at worst 2%-3% • Losses average 5%-6% monthly

• Monthly payment rate near 40%. Cards used heavily as payment convenience mechanism

• Payment rate only 17%-18% indicates cards used as a credit source

• Enhancements not as high, 12%-16% • Enhancements near 20% to cover higher losses

• Third party enhancements, 5%-5.5% • Third party enhancements, 7%-10% range

COMMENTARY

Bank vs. department store credit card programs are quite different in five major respects: (1) Department stores charge much higher rates on credit cards, 2.4% per month, which yields gross returns after the “free” use adjustment in the 24%-25% area. Banks charge only 17%-18% for their programs. (2) Loss writedowns are usually under 2% for banks and at worst, are in the 2%-3% level. For retailers, losses have trended upward to 5%-6% versus levels near 3% earlier in the 1990s. (Sears is an exception, having maintained loss writedowns near 3%.) (3) Monthly

payment rates are near 40% for banks compared to levels near 17% for retailers. This indicates that retailers are used more as a source of credit, versus a payments convenience for bank programs. (4) Enhancements for banks usually include a third party enhancement (second line of defence) of 5%. Retailers have third party enhancements of 7%-10%. (5) Overall, lower losses from banks result in enhancement levels of 12%-16%, versus 20% + for retailer sponsored programs.

Summary: Bank vs. Retailer Sponsored Programs

Bank sponsored programs have lower losses and lower enhancement levels than do the retailer sponsored programs. Banks also charge about 1/3 less for their programs and have payment rates over double that of retailers. This indicates that bank sponsored programs are more heavily used as convenience mechanisms to facilitate payments. However, despite lower loss levels, bank programs have lower gross yields and third

party enhancements are usually 5%, versus 7%-10% for more retailers. As a result, enhancements cover losses by 4-5 times (10 times for Sears) for retailer sponsored plans, almost the same as the 5-7 times for bank sponsored programs. Few problems are foreseen in any of the programs.

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Credit Card Programs in Canada - Page 3

DBRS

Trust Sponsor Enhancements Comments

Eaton Credit Card Trust Norwest Financial (Wells Fargo Group)

10% subordination plus 10%-11% excess spread

Trust now owned by Wells Fargo Group. Has outstanding of near $350 million including $150 million of long debt. Performance good with 20% enhancements supporting 5% in annual writeoffs. Still Eaton is dependent for receivables. Canadian Tire Receivables

Trust

Canadian Tire Corporation 6.35% third party enhancement rising to 9.5% if gross yield falls under 25%. Also, excess spread equals 14% resulting in 20% enhancements.

Good enhancements cover losses of 6% by over 4 times. Yield levels trending down as some Mastercard receivables are included.

Sears Canada Receivables Trust (short term)

Sears Canada 5% subordinate debt plus 16% plus excess spread equals 20% plus enhancements.

Excellent coverage of losses near 3% with 20% enhancements. Favourable loss record is especially noteworthy. One of oldest (1991) programs in Canada, using co-ownership interest in a portfolio of credit cards. Sears Canada Receivables Trust

- 1992(long term)

Sears Canada 4% subordinate debt, plus 3% Trust Units plus 16% plus excess spread. With different enhancements, a separate Trust is needed from the short debt Trust.

Coverage of losses 2% better than the short trust. Long Trust shares a undivided co-ownership interest in the same pool of credit card receivables as the short term.

Cards Trust CIBC Net interest spread of

7%-8% plus L/C of 5.0% issued by Société Générale.

The 12% enhancements cover losses in the 2%-3% range by over 4 times. Outstandings equal $2 billion in long debt. Standard credit card structure, well supported.

Canadian Credit Card Trust National Bank Enhancements equal 5.5%. L/C from State Street plus 10%-11% excess spread.

Performance good with losses near 3% covered by 15%-16% enhancements. Payment rate near 30% versus 40% for other banks indicates program used more as source of credit rather than payments convenience. Long debt outstanding equals $500 million.

Master Credit Card Trust Bank of Montreal Excess spread of 7% plus third party enhancement from State Street Bank and Trust.

Loss rates consistently below 2% are easily covered by about 12% in enhancements. Outstandings about $2 billion in long debt. Favourable performance.

Superior Credit Card Trust Royal Bank Excess spread of about 10% plus 5% L/C from Société Générale.

Exceptionally good loss performance results in over 10 times coverage of losses. Standard pattern for this

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commercial paper issuing Trust ($1.5B outstanding). Luna Credit Card Trust Royal Bank Excess spread of 7%-8%

plus a letter of credit provided by Deutsche Bank.

Good enhancement coverage of losses. Standard pattern. Trust incepted April 17/98 and serves as second Royal Bank sponsored ($1.1B outstanding) commercial paper program.

Trillium Credit Card Trust Bank of Nova Scotia 5% subordination plus buildup of excess spread to 5% plus a 5% excess spread equals 15% enhancement.

15% enhancements easily cover under 2% in losses. Payment rate near 23% half that of other banks. Enhancement level pattern different from other banks $1 billion in outstanding long debt.

York Receivables Trust Toronto Dominion 5% subordinate debt plus 10% plus excess spread.

This $800 million long term debt issuing Trust is performing well. Losses under 2% well covered by 15% plus enhancements. Trust established July 1998 with first long term issue.

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DBRS

Overview 1998 Credit Card Programs

Two characteristics of credit card programs in 1998 were: (1) All programs performed satisfactorily. (2) There were five new Trusts created amounting to new borrowings of $4.7 billion (mainly term debt), involving every major Canadian commercial bank except the Bank of Montreal (the latter was already active from the prior year). All three key factors involved in evaluating credit card receivables in Canada remained positive. (1) Generally, the gross yields earned on the cards held in the 16%-17% area for bank sponsored credit card trusts and the 24% area for department stores, all showed excellent returns. (2) The charge off rate actually improved slightly to below 3% (in the 2%-3% area) for bank related, and near 5% for retailer sponsored credit card plans. This level for banks is under half the 6%-7% loss rate prevailing in the U.S. with VISA related credit cards. (3) The monthly payment rate is holding near 40% for bank and 17% for retailer sponsored plans. This indicates that credit card receivables are a very liquid receivable which, in the case of bank sponsored plans, is being used heavily as a payment mechanism by customers as opposed to a source of credit. Due to these factors, enhancement levels covered losses by

at least three times and in the case of most bank sponsored credit card trusts, enhancements exceeded losses by 5 times. This represents very good protection against future losses and we do not expect near term problems to occur. Canada has the advantage of having tougher bankruptcy laws and, this, in addition to cultural differences, account for credit card loss rates under half the U.S. levels. Enhancement levels are of two tiers: (a) Excess spread, defined as gross return on the portfolio, minus interest, minus administration cases, minus write-offs. Excess spread amounts to 7.5%-10% for bank sponsored and at least 11% for retailers. (b) The second level of protection consists of third party letters of credit or subordination, which equal 5%-5.5% per Trust (where used). A sharp rise in interest rates would squeeze excess spread for programs funded with commercial paper as liabilities reprice before assets. However, excess spreads are so high, that this risk is considered minor. Credit card receivables are also widely diversified by obligor and are very liquid with an average term below three and six months for bank and retail programs respectively.

DEGREE OF CREDIT ENHANCEMENT COVERAGE

Eaton Credit Card Trust Sears Credit Card Trust -1992 Canadian Tire Receivables Trust CARDS Trust Cdn. Credit Card Trust Master Credit Card Trust Superior Credit Card Trust Luna Credit Card Trust Trillium Credit Card Trust York Receiv. Trust II

Banks - - - CIBC National BMO Royal Royal BNS TD

Excess Spread 10.9% 19.1% 11.0% 7.4% 10.6% (2) 9.0% 7.5% 5.3% 10.3% Third Party Enhancement 10.0% 7.0% 6.8% 5.0% 5.5% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL Enhancement 20.9% 26.1% 17.8% 12.4% 16.1% (2) 14.0% 12.5% 10.3% 15.3% Latest month loss rate 5.1% 2.90% 5.20% 3.0%E 2.60% (2) 1.04% 2.54% 1.86% 1.72% Coverages of Enhancement Loses 5.1x 10x 4.4x 4.7x 7.2x (2) 14.5x 5.9x 6.5x 9.9x

(1) Long Term Debt only.

(2) Bank of Montreal has requested that performance statistics not be published.

COMMENTARY

The results show the relationship between credit enhancements and latest month loss rates which in most cases, is the annualized loss rate in September or October 1998. Excess spread is defined as Gross portfolio yield minus interest expense less administration costs less losses. Adding back losses and dividing by losses shows the number of times that enhancements cover losses. The bank related credit card programs have better enhancements coverage than do the department store programs but all programs are well covered. Enhancement coverage of 3-5 times is considered normal for

AAA/R-1(high) ratings, and all programs fall within or exceed this range. Enhancement coverage is sensitive to: (1) Net losses. (2) For programs funded with CP (SCRT, ECCT, Superior, Luna and CTRT 1997-1), the level of interest rates. As interest rates rise, excess spreads tend to be squeezed. In most cases, enhancements include a 5% letter of credit from a highly rated bank. York Receivables and Trillium Credit Card Trust are protected by subordination and will accumulate cash reserves of up to 5% which will raise enhancements by this amount should excess spreads fall below trigger levels.

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NEW ISSUES IN 1998

Trust Sponsor Issue Size

York Receivables Trust II Toronto-Dominion $800M Senior and Subordinate Debt (long term) Trillium Credit Card Bank of Nova Scotia $1.0 billion Senior and Subordinate Debt (long term) Luna Credit Card Trust Royal Bank $1.1 billion in commercial paper

CARDS Trust CIBC $1.325 billion in senior debt (long term) Canadian Credit Card Trust National Bank $500 million senior debt (long term)

COMMENTARY

The year 1998 was a busy year for the formation of new Trusts to issue debt in the credit card receivable area. About $4.7 billion was borrowed in the capital markets in 1998 by Trusts sponsored by five different sponsoring banks. A trust structure was used in all cases, involving the sale of credit card

receivables from the bank to the trust. Banks are financing a growing proportion of their credit card receivables in the capital markets through securitization. This trend is expected to continue as more credit card receivables are expected to be sold to Trusts.

Credit Cards Program

INTRODUCTION

Three key considerations are emphasized in analyzing credit card programs. These are the gross yield, the loss rate and the payment rate: (1) The gross yield determines excess spread and indicates what is happening to the gross return. (2) The loss rate establishes overall risk and when compared to enhancements establishes the degree of protection. (3) The monthly payment rate establishes how liquid the portfolio is and what the nature of cash flows is. Enhancements in most cases are of two tiers and consist of: (1) Gross yield on the portfolio, less interest,

administration, and losses to arrive at excess spread. (2) A third party enhancement which is usually a letter of credit from a highly rated bank equal to 5.0%-5.5%, alternatively, subordination of 5%. Enhancements usually amount to 16% for bank related credit card programs and over 20% for department store programs. With loss rates under 3% for the bank sponsored programs and closer to 5% for department store programs, most Trusts have 4 times plus protection of losses with credit enhancements.

GROSS YIELD Eaton Credit Card Trust Sears Credit Card Trust -1992 Canadian Tire Receivables Trust CARDS Trust Cdn. Credit Card Trust Master Credit Card Trust Superior Credit Card Trust Luna Credit Card Trust Trillium Credit Card Trust York Receiv. Trust II

Bank Sponsor - - - CIBC National BMO Royal Royal BNS TD

1998 (1) 23.7% 25.2% 23.7% 17%E 19.5% (2) 16.4% 16.2% 14.7% 18.3% 1997 23.1% 24.8% 24.7% 17.1% 18.6% 15.4% 13.1% 13.1% 16.7% 17.7% 1996 23.7% 25.2% 26.1% 18.2% 20.0% 16.9% 14.8% 14.8% 18.4% 19.6% 1995 22.3% 25.5% 25.7% 18.7% 18.6% 16.3% 15.1% 15.1% 17.8% 19.0% 1994 21.3% 25.2% 25.6% 17.2% 16.7% 14.5% 13.1% 13.1% 16.3% 18.0% 1993 24.5% NA 26.3% 17.7% 17.7% 15.0% 13.8% 13.8% 17.5% 19.2%

(1) 98 results are for 9 or 10 months annualized.

(2) BMO has request that performance statistics not be published.

Yield is defined as gross interest charges on the portfolio divided by average outstandings. The gross yield is one of three key elements used in evaluating credit cards. Key conclusions, which can be reached from the above table are: (1) Department stores charge much higher rates than banks, but average balances for department stores are also much lower than banks and the average administration cost is higher (1.5% - 2% is considered the cost range to administer credit card programs). This cost is typically paid for by the bank sponsor. (2) Department stores charge 2.4% per month and this rate has

held for over 30 years. Hence, gross yield does not change much and is similar for all three programs. (3) Banks include the fees that they charge merchants in yields, which adds 1.5%-4% to gross yield. (4) Average gross yields have generally held for the big 6 Canadian banks near 16%-17%. TD Bank and National Bank have maintained the highest yields, while Bank of Nova Scotia’s decline in 1998 is considered an aberration. (5) Despite competition from U.S. credit card issuers, gross yield in Canada has held quite favourably.

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DBRS

WRITE-OFFS Eaton Credit Card Trust Sears Credit Card Trust -1992 (1) Canadian Tire Receivables Trust CARDS Trust Cdn. Credit Card Trust Master Credit Card Trust Superior Credit Card Trust Luna Credit Card Trust Trillium Credit Card Trust York Receiv. Trust II

1998 (1) 5.1% 2.9% 6.3% 3%E 2.6% (2) 1.0% 2.5% 1.4% 1.3% 1997 6.1% 3.2% 6.8% 3.1% 3.6% 2.0% 1.9% 1.9% 2.2% 2.6% 1996 7.7% 3.6% 5.8% 3.0% 3.8% 1.9% 2.1% 2.1% 2.2% 2.3% 1995 5.2% 3.1% 5.4% 2.2% 2.2% 1.6% 1.8% 1.8% 1.6% 2.0% 1994 3.5% 2.2% 5.2% 2.2% 2.15 1.4% 1.3% 1.3% 1.3% 2.0% 1993 3.6% NA 6.0% 2.3% 2.7% 1.8% 1.3% 1.3% 1.4% 2.7%

(1) 1998 results are from 9 or 10 months average.

COMMENTARY

Losses are defined to be net of recoveries and the following conclusions can be reached. (1) Department store losses average about triple those of the banks except for Sears, whose performance is much closer to that of the banks. (2) Department store credit card programs are used more as a source of credit, while banks’ credit card programs are used more as a payment mechanism with high monthly repayment. This contributes to a higher risk customer for department stores and larger ultimate losses. (3) Losses

rose in 1996 for almost all programs. Bank programs actually improved after 1996, while department store losses generally stabilized. (4) Canadian Tire in most years had the highest loss rates of any of the programs but also priced for this. (5) The Canadian banks, with loss levels near 2%, are about one-third the loss level prevailing in the U.S. This is due to the greater ease of declaring personal bankruptcy in the U.S. relative to Canada, and cultural differences. PAYMENT RATE Eaton Credit Card Trust Sears Credit Card Trust -1992 (1) Canadian Tire Receiv. Trust CARDS Trust Cdn. Credit Card Trust Master Credit Card Trust Superior Credit Card Trust Luna Credit Card Trust Trillium Credit Card Trust York Receiv. Trust II

1998 16.3% 22.3% 18.1% 42% 31% (2) 36% 48% 23% 37% 1997 16.6% 22.0% 15.3% 37% 32% 41% 42% 42% 26% 38% 1996 13.9% 20.2% 14.5% 35% 31% 41% 39% 39% 25% 40% 1995 12.5% 18.6% 14.3% 35% 32% 40% 37% 37% 25% 38% 1994 14.2% 19.5% 14.9% 36% 34% 40% 33% 33% NA 39% 1993 15.3% 21.3% 14.3% 35% 35% 39% 32% 32% NA 39%

(1) Long term trust only.

COMMENTARY

The Monthly Payment Rate is the third key factor in evaluating credit cards. It measures the proportion of a credit card portfolio collected in the next month. (1) Bank credit card programs have payment rates near 40%, indicative of a very liquid portfolio and also that bank credit card programs are being heavily used as “payment mechanisms”. (3) Two programs stand out as having lower payment rates, those run by National Bank and Bank of Nova Scotia. That means that these programs are being

used as a source of credit more so relative to the other programs. The monthly payment rate is partly an aberration, since it captures the high proportion of customers who use credit cards as a convenience or payment mechanism. DBRS estimates that the payment rate in the second month (after convenience users have paid out) would fall substantially under a liquidating portfolio scenario.

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Canadian Credit Card Trust

Current Report: February 1999 Walter Schroeder, CFA Huston Loke / Jireh Wong

CURRENT RATING e-mail: [email protected] (416) 593-5577

Rating Trend Rating Action Debt Rated

AAA Stable Confirmation Credit Card-Backed Cert., Series 1998-1 - $500M, 5.625% due March 24, 2005

RATING HISTORY Current 1998 1997

Credit Card-Backed Cert., Series 1998-1 - $500M, 5.625% due March 24, 2005 AAA AAA AAA

RATING CONSIDERATIONS

This Trust was created on March 31, 1998 and completed a $500 million issue of debt maturing March 24, 2005. The gross pool of eligible Mastercard receivables amounts to about $720 million of which the Trust has undivided co-ownership interest amounting to $500 million. The Trust is performing well in all three key areas used to evaluate credit cards. (1) The loss rate, near 3%, although high relative to other commercial banks is still under half the level prevailing in the U.S. and well under the 4%-5% levels where department store losses usually prevail. (2) Gross yield, including interchange, has been holding at very favourable levels in the 18%-19% range which compares favourably with other banks. (3) The

monthly payment rate, which measures the percent of outstandings collected in the month, has averaged in the 30% range indicating a relatively liquid portfolio of receivables. However, other banks have payment rates closer to 40%. This is an indication that this Trust’s receivables portfolio is being used by clients to a greater degree for credit versus convenience use. With losses near 3% and enhancements near 16%, enhancements cover losses by over 5 times which is favourable for credit cards. The letter of credit of 5.5% is provided by State Street Bank and Trust Company, a AA rated bank in the U.S.

FINANCIAL HIGHLIGHTS

Largest Seller Industries - October 1998 Largest Asset Types

Financial Institutions - 100% Credit Card Receivables - 100%

DEBT OUTSTANDING ($millions)

Credit Card Backed Certificates, Series 1998-1 – 5.65% due March 24, 2005 - $500M

Inception Date: March 31, 1998

Originator/Servicer: National Bank of Canada

Credit Enhancer: Letter of Credit by State Street Bank and Trust Company (5.5%) Co-lead Underwriter: Levesque Beaubien Geoffrion Inc. and Nesbitt Burns

Credit Enhancement: Excess spread, an irrevocable letter of credit by a credit enhancer, and a cash collateral account FINANCIAL HIGHLIGHTS ($millions) Principal rec. Outstanding Long debt Outstanding Monthly Payment Rate Excess Spread L/C plus CCA Total Enhancement Dec. 31/98 775 500 31% 9.8% 5.5% 15.3% Nov. 30/98 738 500 30% 11.7% 5.5% 17.2% Oct. 31/98 730 500 31% 10.6% 5.5% 16.1% Sept. 30/98 735 500 29% 11.1% 5.5% 16.6% Aug. 31/98 720 500 29% 10.8% 5.5% 16.3% July 31/98 709 500 34% 11.1% 5.5% 16.3% June 30/98 715 500 35% 12.4% 5.5% 17.9% May 31/98 719 500 29% 11.4% 5.5% 16.9% April 30/98 (1) 710 500 28% 11.2% 5.5% 16.7%

(1) April 30/98 was the first reporting period for this Trust.

THE TRUST

Canadian Credit Card Trust was established on March 31, 1998, when it completely a $500 million long term debt issue. The Trust is part of the National Bank family of companies. The Trust’s lead underwriters are Levesque Beaubien Geoffrion Inc. and Nesbitt Burns.

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Securitizations

DBRS

Canadian Tire Receivables Trust

Current Report: February 1999 Walter Schroeder, CFA

RATING Huston Loke / Jireh Wong

Rating Trend Rating Action Debt Rated e-mail: [email protected] (416) 593-5577

R-1 (high) Stable Confirmation Commercial Paper AAA Stable Confirmation Senior Notes AA (low) Stable Confirmation Subordinate Notes

RATING HISTORY Current 1998 1997 1996 1995 1994

Commercial Paper R-1 (high) R-1 (high) R-1 (high) NR NR NR Senior Notes AAA AAA AAA AAA AAA NR Subordinated Notes AA (low) AA (low) AA (low) AA (low) AA (low) NR

RATING CONSIDERATIONS

The Trust continues to function well. The lower yield for long term receivables relates to the fact that funding costs for the commercial paper has been lower than those of the term issues. Each series of notes including commercial paper have specific credit card accounts assigned to them. The receivables have performed well, and generally net spread levels for each of the term debt issues are very similar. Relative to other retailer related credit card programs: (1) The loss rate near 6% compares to levels below 5% for other programs. (2) This is partly offset by gross yield which has averaged 24%-25%. Note that basic enhancement levels have the ability to rise from

6.35% to a maximum of 10.50% (9.50% for one commercial paper program), as gross yield falls below 25%. Starting in June 1997 (Series 1995-1) and October 1998 for commercial paper, the falling yield has resulted in an “adjusted enhancement” of 6.9%-7% versus a base enhancement of 6.35%. (3) The payment rate near 17% is consistent with other retailers which prevailed for much of the 1990s. Despite higher losses, the 20% enhancements for commercial paper cover losses by 3 1/3 times, while long term debt rated securities are covered by about 2.8 times by credit enhancements, all considered reasonable.

Retailing - 100% Credit Card Receivables - 100%

REMAINING DEBT OUTSTANDING (millions)

Series 1995-1 and 1995-2, Series 1996-1 (Senior Notes) - $457 Subordinate Notes 1995-1 and 1995-2, 1996-1 - $5

Asset backed commercial paper, 1997-1 - $135 (Dec. 1998) Inception Date: November 1995 (for long term debt)

Lead Dealer: Long Term Debt: TD Securities Inc. Commercial Paper: RBC Dominion Securities Legal Structure: Undivided co-ownership interest in a special purpose Trust

Credit Enhancements: 6.35% enhancement rising to 10.5% (9.5% for one CP program) if gross yield falls below 25%

FINANCIAL HIGHLIGHTS

($millions) Debt Outstanding Gross Yield Payment Rate Net Charge Off

Dec. 31/98 597 23.5% 18.4% 4.4% Sept. 30/98 595 23.9% 17.8% 5.2% June 30/98 613 23.5% 18.5% 7.2% March 31/98 611 23.6% 18.2% 6.8% Dec. 31/97 564 23.4% 16.8% 6.7% Mar. 31/97 562 25.3% 16.3% 6.5%

(1) Long term debt only.

Series 1995-1 Series 1995-2 Series 1996-1 Series 1997-1 (CP)

($millions) Net Spread Enhancement Net Spread Enhancement Net Spread Enhancement Net Spread Enhancement

Dec. 31/98 11.5% 6.7% 11.2% 6.7% 12.1% 6.7% 12.6% 6.7% Sept. 30/98 11.0% 6.8% 10.7% 6.8% 12.0% 6.8% 13.9% 6.4% June 30/98 8.6% 6.9% 8.2% 6.9% 9.2% 6.9% 13.9% 6.4% Mar. 31/98 9.0% 6.9% 8.6% 6.9% 9.5% 6.9% 13.3% 6.4% Dec. 31/97 9.4% 6.6% 9.0% 6.6% 9.9% 6.6% 13.5% 6.4% Mar. 31/97 10.9% 6.4% 10.6% 6.4% 11.4% 6.3% 10.6% 6.4%

THE TRUST Canadian Tire Receivables Trust issues both commercial paper and long term debt to finance the purchase of credit card receivables from Canadian Tire Acceptance Limited.

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CARDS Trust

Rating Amount Trend Rating Action Debt Rated

AAA $300 million Stable Confirmation 5.4% Series 1998-1, September 21, 2001 AAA $675 million Stable Confirmation 5.51% Series 1998-2, June 21, 2003 AAA $350 million Stable Confirmation 5.63% Series 1998-3, December 21, 2005

All series shown AAA AAA NR NR NR NR

RATING CONSIDERATIONS

CARDS Trust is part of a family of securitization trusts established by CIBC Wood Gundy. In 1998, the Trust issued three series of notes, maturing 2001-2005. The notes have an undivided interest in a pool of credit card receivables amounting to $5.2 billion, of which the Trust share is $2 billion. The enhancements for this Pool of assets is considerable with excess spreads of 7%, plus a 5% irrevocable letter of credit provided by Société Générale. The 12% enhancements cover the diversified portfolio of credit card receivables by over 4 times the latest loss rate. The whole program is administered by CIBC, one of the

most experienced securitization administrators in Canada. The payment rate on the program is also 40%, which means that approximately 40% of the portfolio is collected within the first month indicating a very liquid portfolio. Amortization of the program occurs, among other things, if the spread falls below 2% (current is above 7%) or if the payment rate falls below 10% (current is 40%). The portfolio is extremely well diversified across almost 4 million accounts with an average balance of $495 including all accounts or $1,815 including only those accounts with a credit balance.

Inception Date: April 24, 1998

Structure: Co-ownership interest in a pool of credit card receivables in a master trust. Seller: Canadian Imperial Bank of Commerce

Monthly Payment Rate: Average is near 40%.

Loss Rate: Losses average 2%-3% which is under half the level prevailing in the U.S.A.

Credit enhancement: The seller specific enhancement consists of a net interest spread which has averaged at least 7%-8%, an irrevocable letter of credit issued by Société Générale (currently rated AA (low), R-1 (middle) with a Stable trend) equal to 5% of the face amount of the Series Notes, and a cash collateral account (the CCA is currently zero).

Structure: For each Series, the Series has an individual interest in certain specific credit card receivables. Specific credit card accounts have been allocated to the three series and the portfolio amounts must be a minimum 107% of outstanding notes. If it falls below this level, new accounts must be allocated.

FINANCIAL HIGHLIGHTS

Excess Spread Payment Rate L/C plus CCA Credit Enhancement

Dec. 31/98 6.8% 42.3% 5% 11.8% Nov. 30/98 7.3% 41.7% 5% 12.3% Oct. 31/98 7.5% 41.5% 5% 12.5% Sept. 30 7.4% 41.6% 5% 12.4% Aug. 31 7.2% 43.0% 5% 12.2% July 31 6.6% 43.6% 5% 11.6% June 30 6.6% 43.0% 5% 11.6% May 31 6.8% 41.0% 5% 11.8%

(1) The May 31/98 date is the first reporting period.

DEBT OUTSTANDING

$1.325 billion contained in three series of term debt, as outlined above.

THE TRUST

CARDS Trust is a single seller Trust formed to buy credit card receivables from CIBC.

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Securitizations

DBRS

Eaton Credit Card Trust

CURRENT RATING Huston Loke / Jireh Wong

Rating Trend Rating Action Debt Rated e-mail: [email protected] (416) 593-5577

R-1 (high) Stable Confirmation Commercial Paper

AAA Stable Confirmation Asset-Backed Senior Notes, Series 1992-4, due Dec. 1, 1999 AAA Stable Confirmation Asset-Backed Senior Notes, Series 1995-1, due Dec. 1, 2000

Commercial Paper R-1 (high) R-1 (high) R-1 (high) R-1 (high) R-1 (high) R-1 (high) Series 1992-4, Debt due Dec. 1, 1999 AAA AAA AAA AAA AAA AAA Series 1995-1, Debt due Dec. 1, 2000 AAA AAA AAA AAA AAA AAA

RATING CONSIDERATIONS

Many positive elements have happened to Eaton Credit Card Trust over the portfolio years. (1) The Trust was sold to Norwest Financial which is part of the Wells Fargo Family of companies from California who have resources to support the Trust. (2) The Trust is aggressively marketing to new clients to attain diversification from Eaton’s. The U.S. Group also owns finance company operations in Canada and there are potential synergies between these finance and credit card operations especially in respect to marketing. (3) All three main segments used to measure credit card operations are positive. (a) Loss rates are ranging 4%-5% which is superior to 6%-7% in the U.S., although not as favourable as the 2%-3% low rate which prevailed before 1994. (b) The portfolio yield is holding in the 18% range which contributes to the excess spread being near 10% (a first line of defence for credit enhancement). (c) The payment rate is holding near 17%-18%

which means 17%-18% of the portfolio is retired in the next month indicating a relatively liquid portfolio. (4) As a result, 10% excess spread plus 10% subordinate debt equals 20% enhancements to cover annualized losses of 4%-5%. Thus, enhancements cover losses by 4-5 times which is good and consistent with an R-1 (high), AAA rating. The key challenges with the portfolio are the high dependence on Eaton’s. The latter accounts for a high proportion of total receivables. The future direction and ability of Eaton’s as a going concern are not clear. Failure of Eaton’s would mean that the Trust would not be able to purchase new receivables so the Trust would have to add non Eaton’s receivables quickly. However, even with the loss of Eaton’s, we would expect a normal liquidation of the Eaton’s credit card program with relatively few problems.

Retailing - 100% Credit Card Receivables - 100%

REMAINING DEBT OUTSTANDING – 1998/1997

($millions) December November October December ‘97 June ’97

Long Term Debt 150 150 150 150 150 Commercial Paper 270 208 202 303 232 Inception Date: December 1991

Sponsor: Norwest Financial, now part of Wells Fargo who purchased the Trust from T. Eaton.

Agreement: T. Eaton Company signed an agreement with the Trust to exclusively continue to sell receivables to the Trust for a ten year period to 2007.

Structure: Senior/subordinate structure

Credit Support: Net interest spread which has been averaging 9%-10% annually plus 10% subordinate debt. Liquidity Support: Full bank line credit support is provided from banks rated AA (low) or better.

FINANCIAL HIGHLIGHTS

($millions) Debt Outstanding Yield Excess Spread Payment Rate Charge off Rate Credit Enhancement

Dec. 31 420 17.6% 10.7% 17.1% 3.9% 20.7% Sept. 30 342 18.2% 10.9% 15.8% 5.1% 20.9% June 30 362 18.6% 11.8% 16.7% 4.5% 21.8% March 31 382 18.5% 10.7% 15.9% 5.5% 20.7% Dec. 31/97 453 16.8% 9.6% 15.6% 5.5% 19.6% Dec. 31/96 529 17.9% 10.5% 15.5% 7.5% 20.5% Dec. 31/95 741 19.1% 11.3% 12.7% 6.4% 21.3% Dec. 31/94 821 18.6% 11.0% 11.9% 3.5% 21.0% Dec. 31/93 609 19.6% 12.2% 13.9% 3.0% 22.2% Dec. 31/92 568 18.8% 10.4% 14.8% 3.9% 20.4%

THE TRUST Eaton Credit Card Trust was purchased by Norwest Financial who is part of the Wells Fargo Group of companies in California. Since acquiring Eaton Credit Card Trust in 1998, a marketing program was introduced to add new and reduce dependency of the Trust on Eaton’s. Eaton’s signed a ten year exclusive contract with the Trust, whereby it will continue to sell financial credit card receivables to the Trust exclusively until 2007.

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Information used in this Report comes from sources believed to be reliable, but we cannot guarantee that it, or the opinions in this Report, are complete or accurate. This Report is not to be construed as an offering of any securities, and it may not be reproduced without our consent.

Luna Credit Card Trust

R-1 (high) Stable Confirmation Asset-backed Commercial Paper

Asset-backed Commercial Paper R-1 (high) R-1 (high) NR NR NR NR

RATING CONSIDERATIONS

Luna Credit Card Trust is part of the Royal Bank family of companies. On April 17, 1998, it made a major purchase of credit card receivables from Royal Bank. It is issuing $1.1 billion in commercial paper to finance this portfolio of credit card receivables. The program is a revolving program and Royal Bank sells enough credit card receivables into the program to keep outstandings near $1.1 billion. The enhancements consist of a letter of credit provided by Deutsche Bank equal to 5% plus an excess spread equal to 8%-10%. With losses ranging 2%-3%, the credit enhancements cover the loss rate by over 6 times,

which is an excellent performance. This is under half the loss rates presently being experienced by credit cards in the U.S. Full bank line coverage of commercial paper is provided led by Royal Bank and various other banks rated AA (low) or better. The payment rate is also excellent with over 40% of credit card receivables collected in the month. This gives substantial liquidity to the program supplementing bank lines. In addition, with assets turning into cash so quickly, any build up of delinquencies is known early.

COMMERCIAL PAPER OUTSTANDING - 1998

($millions) December ‘98 November October December’97

Commercial Paper Outstanding 1,100 1,100 1,100 0

Inception Date: April 17, 1998

Structure Type: Single seller, credit card receivables Trust which issues commercial paper to fund co-ownership interests in a pool of VISA credit card receivables.

Credit Enhancement: Seller specific enhancements equal to the net interest income spread of 8%-10% plus a letter of credit provided by Deutsche Bank, a AA (high), R-1 (high) rated bank.

Liquidity Facility: Full bank line coverage provided by Royal Bank and a syndicate of banks rated R-1 (middle) or better.

Program Size: The outstanding commercial paper is $1.1 billion. Seller: Royal Bank of Canada

Payment Rate: Near 40% Loss Rate: Under 2%

FINANCIAL HIGHLIGHTS ($millions)

Debt Outstanding Excess Spread Payment Rate L/C Amount Credit Enhancement

Dec. 31/98 1,100 9.5% 47% 5% 14.5% Nov. 30/98 1,100 10.4% 48% 5% 15.4% Oct. 31/98 1,100 7.5% 47% 5% 12.5% Sept. 30/98 1,100 10.0% 46% 5% 14.9% Aug. 31/98 1,100 8.1% 48% 5% 13.1% July 31/98 1,100 7.6% 50% 5% 12.6% June 30/98 1,100 5.7% 49% 5% 10.7% May 31/98 1,100 8.1% 46% 5% 13.1% THE TRUST

Luna Credit Card Trust is a member of the Royal Bank family of companies. It buys credit card receivables from Royal Bank, a single seller, and has maintained outstanding commercial paper near $1.1 billion since inception.

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Securitizations

DBRS

Master Credit Card Trust

Current Report: February 1999 Walter Schroeder, CFA Huston Loke / Jireh Wong e-mail: [email protected] (416) 593-5577

CURRENT RATING

AAA Stable Confirmation Credit Card-backed Investor Certificates, Series 1997-1, due August 21, 2002 AAA Stable Confirmation Credit Card-backed Investor Certificates, Series 1997-2, due December 21, 2004 AAA Stable Confirmation Credit Card-backed Investor Certificates, Series 1997-3, due November 21, 2003 AAA Stable Confirmation Credit Card-backed Investor Certificates, Series 1997-4, due June 21, 2007

RATING HISTORY Current 1998 1997 1996 1995 1994 1993 1992

All Series AAA AAA AAA NR NR NR NR NR

RATING CONSIDERATIONS

The performance of this credit card receivable Trust operated by the Bank of Montreal is excellent. Performance is strong in all three key areas which are used to evaluate credit card receivables. (1) The gross yield is quite comparable to other credit card programs and is holding steady. (2) Loss rates Under 2% are roughly under 1/3 the levels which prevail in the U.S. for credit cards and are improving. (3) The payment rate which measures the proportion of credit card receivables collected in the month is standard near 40%, indicating a very

liquid portfolio. The rating on the debt is a long term rating with no commercial paper outstanding. The level of enhancements including the 5% letter of credit covers present losses by over 6 times which is quite good and well within the AAA rating limits of performance. Loss rates on credit card receivables in the U.S. have been deteriorating and now exceed 6%. Loss rates in this program have actually been improving and amount to under 2%.

Inception Date: July 30, 1997 (Series 1 and 2) and October 2, 1997 (Series 3 and 4) Amounts: $550 million, 1997-1 5.76% August 21, 2002

$800 million, 1997-2 6.15% December 21, 2004 $400 million, 1997-3 5.70% November 21, 2003 $250 million, 1997-4 6.06% June 21, 2007 Originator Servicer: Nesbitt Burns/Bank of Montreal

Credit Support: Excess spread, cash collateral account and third party letter of credit. State Street Bank and Trust Company is the credit enhancer.

Legal Structure: Sale of credit card receivables by a single seller, Bank of Montreal to the Trust.

Number of Accounts: 4,369,000 at inception.

FINANCIAL HIGHLIGHTS

Bank of Montreal has requested that performance statistics related to MCCT not be published.

THE TRUST

Master Credit Card Trust is a member of the Nesbitt Burns/Bank of Montreal family of companies. It purchases credit card receivables from the Bank of Montreal and has issued term debt to finance the portfolio.

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Reliant Receivables Trust

R-1 (high) Stable Confirmation Short Term Asset Backed Notes

R-1 (middle) Stable Confirmation First Subordinated Short Term Asset Backed Notes

Short Term ABN R-1 (high) R-1 (high) NR NR NR NR

First Sub. Short Term Notes R-1 (middle) R-1 (middle) NR NR NR NR

RATING CONSIDERATIONS

This Trust was incepted July 30, 1998 and is part of the Toronto-Dominion family of companies. It differs from most conduits in Canada because: (a) It is a single seller conduit, purchasing assets from the Toronto-Dominion Bank. (b) At present, it has purchased only credit card receivables from the bank. It has outstanding commercial paper of $909 million and a pool balance near $1 billion. The Trust share of the Pool is about $900 million with the balance mainly owned on a pari passu basis by the junior creditors. Credit enhancements are two tier. (a) The seller enhancement consists of an excess spread after all loan

losses, interest expense and operating expenses of 8%-10%. (b) In addition, a letter of credit (third party) equal to 5.25% exists. Thus, total credit enhancements have been in the 14%-16% range. Lastly, the payment rate (95% of outstandings) is 35%-40% per month, resulting in a very liquid portfolio of assets. Full bank line support is provided by banks rated R-1 (middle) or better including TD. The Trust can issue senior R-1 (high) or junior R-1 (middle) rated commercial paper but there is presently no junior commercial paper outstanding. Reliant Trust is relatively new with a July 30, 1998 inception.

Largest Seller Industries (October 31, 1998) Largest Asset Types

Financial Institutions - 100% Credit Card Receivables - 100%

COMMERCIAL PAPER OUTSTANDING - 1998

($millions) December ‘98 November October September December ‘97

Senior Commercial Paper 909 911 927 905 0

Junior Commercial Paper 0 0 0 0 0

Inception Date: July 30, 1998

Structure Type: Single seller, multi-asset master trust Lead Underwriter and Administrative Agent: TD Securities Inc. and TD Bank

Credit Enhancement: Two tiers of enhancement exist. Specific seller enhancement includes spreads which have ranged 8%-10% and third party enhancers such as banks.

Third Party Credit Enhancers: Must be rated at least AA (low) or be cash collateralized.

Liquidity Support: Liquidity lenders must have ratings of at least R-1 (middle). Liquidity lines exist for market disruption only and may be cancelled if credit related problems emerge. Full bank line coverage of short debt is provided.

Structure: The Trust is a special purpose vehicle which can purchase a wide range of financial assets. The administration is conducted by the administrative agent. Several Seller pools of assets can act as security for the Series of notes issued, but in case of losses, each pool stands on its own credit strength.

Legal: Legal counsel to the Trust, rendered an opinion that the Trust exists, the Issuer Trustee has the power to perform its obligations and that the trust Indenture is legally binding. When assets are sold (creating a pool), a true sale and bankruptcy remoteness opinion are customarily obtained by DBRS.

THE TRUST

Reliant Receivables Trust was created by Toronto Dominion Bank as a single seller (TD Bank) multi-asset Trust. Presently, it has purchased only credit card receivables of which the Trust share is about $900 million.

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Securitizations - Bond

Information used in this Report comes from sources believed to be reliable, but we cannot guarantee that it, or the opinions in this Report, are complete or accurate. This Report is not to be construed

DBRS

Sears Canada Receivables Trust - 1992

CURRENT RATING Huston Loke / Jireh Wong

Rating Trend Rating Action Debt Rated e-mail: [email protected] (416) 593-5577 AAA Stable Confirmation Asset Backed Senior Notes

RATING HISTORY Current 1998 1997 1996 1995 1994 1993 1992

Series 1994-1 (175M, June 1, 2004) AAA AAA AAA AAA AAA AAA AAA AAA Series 1996-1 (150M, April 1, 2001) AAA AAA AAA AAA AAA AAA AAA AAA Series 1998-2 (150M, Dec. 16, 2003) AAA AAA AAA AAA AAA AAA AAA AAA Various series subordinate debt A(high) A(high) A(high) A(high) A(high) A(high) A(high) A(high) Trust units (sub.) NR NR NR NR NR NR NR NR

RATING CONSIDERATIONS

This Trust finances long term debt and because enhancements for the long term trust are 7% versus 5% for the short term Trust, a separate Trust with a separate dedicated security pool had to be created. Total enhancements consist of 15%-17% excess spread plus 4% subordinate debt plus 3% subordinate Trust Units, which have no specific maturity date. This means that enhancements of 22%-24% cover average losses of under 3% by close to 8 times which is quite exceptional for a credit card receivable portfolio in North America. The three key criteria used in evaluating credit cards are all positive for Sears: (1) The average loss rate has generally been below 3% which is quite impressive compared to other retail programs (which

exceed 5%) or U.S. credit card losses between 6%-7%. (2) The gross yield on the credit card portfolio has held in the 20%-22% range. (3) The payment rate continues to be near 20% which is also indicative of a very liquid portfolio of receivables. The long nature of debt means that this long term financing Trust is better able to lock in interest rates over the long term and hence excess spread should be a more stable number than it is for the short term trust. This Trust has consistently outperformed other Trusts with respect to losses.

Retailing – 100% Credit Card Receivables – 100%

REMAINING DEBT OUTSTANDING ($MILLIONS)

Series 1994-1, $175M 8.95% June 1, 2004 AAA

Series 1996-1, $150M Floating April 1, 2001 AAA

Series 1998-2, $150 M 5.34% Dec. 16, 2003 AAA

Series 1995-4 (Sub), $3.9M Floating June 1, 2004 A (high) Series 1995-5 (Sub), $3.9M 9.18% June 1, 2004 A (high) Series 1996-2 (Sub), $6.6M Floating April 1, 2001 A (high) Series 1998-1 (Sub), 6.6M Floating Dec. 16, 2003 A (high)

Inception Date: December 1993 Lead Sponsor: Sears Canada Inc.

Legal Structure: Senior subordinate structure with the Trust having an undivided interest in a pool of credit card receivables.

Credit Enhancement: Excess spread near 16% plus 4% subordinate debt plus 3% Trust Units.

FINANCIAL HIGHLIGHTS

Dec. 31 475 21.1% 14.4% 23.3% 2.64% 21.4% Sept. 30 475 22.4% 19.1% 21.1% 2.90% 26.0% June 30 475 22.2% 15.8% 22.0% 2.94% 22.8% March 31 475 25.5% 19.2% 23.0% 2.55% 26.2% Dec. 31/97 475 22.2% 16.3% 21.8% 2.32% 23.3% Dec. 31/96 575 20.4% 14.6% 21.4% 3.66% 21.6% Dec. 31/95 425 21.6% 14.7% 18.1% 3.27% 21.7% Dec. 31/94 425 22.0% 15.3% 18.2% 2.27% 22.3% Jan. 31/94 250 22.1% 15.0% 23.4% 2.37% 22.0% THE TRUST

Sears Canada Receivables Trust is in business to purchase credit card receivables from the Sears family of companies through an undivided co-ownership interest in a pool of credit card receivables.

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Information used in this Report comes from sources believed to be reliable, but we cannot guarantee that it, or the opinions in this Report, are complete or accurate. This Report is not to be construed as

Sears Canada Receivables Trust

Rating Trend Rating Action Debt Rated R-1(high) Stable Confirmation Commercial Paper

“A” Stable Confirmation Asset-Backed Subordinated Notes, Series 1998-1

RATING HISTORY Current 1998 1997 1996 1995 1994 1993

Commercial Paper R-1 (high) R-1 (high) R-1 (high) R-1 (high) R-1 (high) R-1 (high) R-1 (high) Asset-Backed Sub. Notes, Series 1998-1 “A” “A” NR NR NR NR NR

RATING CONSIDERATIONS

Sears Canada Receivables Trust is one of the oldest Trusts in Canada (December 2, 1991 inception) and is in business to buy credit card receivables from Sears Canada purchasing an undivided interest in a pool of credit card receivables. The credit card receivable portfolio ranks as one of the strongest credit card portfolios in Canada with all three areas considered key in evaluating credit cards positive: (1) The loss rate has consistently been below 3% versus 6%-7% in the U.S., and 4%-5% for Eaton’s, for example. (2) The gross yield on the portfolio is holding near 20%-22% although there is some fluctuation around these points. (3) The payment rate continues to be near 20% (this means that approximately 20% of the portfolio is collected in the month). Thus, credit card receivables are highly liquid. Enhancements amount to 5%

subordinate trust units plus 15%-17% excess spread leading to a 21% total enhancement. The latter covers losses by close to 7 times which is very good and leaves a large margin for any future problems which may arise. The Servicer is also well qualified to administer the accounts which are well diversified by obligor and geography. As an added strength, the performance of the parent (Sears Canada) in merchandising has been generally improving in a very difficult competitive market in Canada. There is a degree of liability sensitive mismatch as relatively fixed rates earned on the portfolio are partly funded by variable rate debt. This would result in some earnings squeeze if interest rates rise, but, the effects should not be enough to create problems.

Retailing – 100% Credit Card Receivables – 100%

COMMERCIAL PAPER OUTSTANDING

($millions) December ‘98 November October December 31/97 June ‘97

Commercial Paper 487 553 440 372 323

Inception Date: December 2, 1991 Lead Sponsor and Servicer: Sears Canada Inc.

Legal Structure: Senior/Subordinate with the Trust having an undivided co-ownership interest in a portfolio of securities.

Credit Enhancement: Subordinate (5%) consisting of Trust Units, plus excess spread which averaged 15%-16% in 1998. Credit enhancements exceeded 20% collectively.

Liquidity Support: Full bank line coverage of commercial paper is provided.

FINANCIAL HIGHLIGHTS

Dec. 31 487 21.1% 14.4% 23.3% 2.64% 19.4% Sept. 30 460 22.3% 19.1% 21.1% 2.90% 24.0% June 30 423 22.2% 15.8% 22.0% 2.94% 20.8% March 31 446 25.5% 19.2% 23.0% 2.55% 24.2% Dec. 31/97 372 22.2% 16.3% 21.8% 2.32% 21.3% Dec. 31/96 311 20.4% 14.6% 21.4% 3.66% 19.6% Dec. 31/95 661 21.6% 14.7% 18.1% 3.27% 19.7% Dec. 31/94 667 22.0% 15.3% 18.2% 2.27% 20.3% Dec. 31/93 761 22.2% 17.3% 19.7% 1.80% 22.3% Mar. 31/93 694 22.1% 15.0% 23.4% 2.37% 20.0% THE TRUST

Sears Canada Receivables Trust is in business to purchase an undivided co-ownership interest in a credit card receivables pool of credit card receivables, originated by the Sears family of companies.

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Securitizations

DBRS

Superior Credit Card Trust

Rating Trend Rating Action Debt Rated R-1 (high) Stable Confirmation Commercial Paper

Commercial Paper R-1 (high) R-1 (high) R-1 (high) NR NR NR

RATING CONSIDERATIONS

This portfolio of credit card receivables consists of Royal Bank VISA card accounts originated on or before December 31, 1991, and continues to perform satisfactorily. The Trust is strong in the key three criteria used to measure credit card performance. (1) The most impressive performance is in the area of losses, where losses in recent months have been averaging near 1%. This is exceptional performance compared to U.S. credit card experience where losses are averaging 6%-7%. (2) The gross yield on the portfolio has been near 15% which, after losses and interest expense, contributes to an excess spread of 9%-10%. (3) The payment rate which measures the percentage of outstandings collected in the month is near 38%. This is

consistent with the banks and indicates a liquid portfolio of securities which would be monetized on its own (and very quickly) if liquidity was needed. In addition, full bank line coverage of commercial paper led by Royal Bank (rated AA) and other banks rated at least AA (low) is provided. For the last few months, credit enhancements cover the latest monthly loss rates by over 10 times which is a quite exceptional level of performance for a credit card program. The main reason for this is the strong credit worthiness of the well-seasoned underlying obligors. The legal structure is an undivided co-ownership interest in an almost $2 billion portfolio, where Royal Banks’ residual interest ranks pari passu with the $1.5 billion in outstanding commercial paper. Inception Date: October 17, 1997

Lead Underwriter and Administrative Agent: RBC Dominion Securities Inc. Servicing Agent: Royal Bank of Canada

Legal Structure: Special purpose trust which issues commercial paper to fund a co-ownership interest in a pool of VISA credit card receivables.

Credit Support: A letter of credit equal to 5% of the Pool plus 10% excess spread amounting to 14%-15% total enhancements in recent months.

Letter of Credit Bank: Société Générale (Canada) (5.0%)

Liquidity Support: Provided by Royal Bank of Canada and a syndicate of banks with ratings of AA (low) or better.

FINANCIAL HIGHLIGHTS

Date 1998 Debt Outstanding Excess Spread Payment Rate L/C Amount Credit Enhancement

Dec. 31 1,500 9.55% 36% 5% 14.6% November 1,500 9.61% 37% 5% 14.6% October 1,500 9.0% 36% 5% 14.0% September 1,500 10.3% 36% 5% 15.3% August 1,500 9.1% 37% 5% 14.1% July 1,500 9.4% 38% 5% 14.4% June 1,500 10.5% 36% 5% 15.5% May 1,500 12.9% 37% 5% 17.9% April 1,500 9.0% 34% 5% 14.0% March 1,500 13.7% 34% 5% 18.7% December 1997 1,500 11.0% 37% 5% 16.0% THE TRUST

Superior Trust is a single purpose Trust should be created to hold an undivided co-ownership interest in credit card receivables from Royal Bank. It is a member of the RBC Dominion Securities family of trusts.

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Trillium Credit Card Trust

AAA Stable Confirmation CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class A A Stable Confirmation CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class B BBB Stable Confirmation CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class C

RATING HISTORY Current 1998

CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class A AAA AAA CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class B A A CCRBN, Series 1998-1, Series 1999-1, Series 1999-2, Class C BBB BBB

RATING CONSIDERATIONS

The Trust was incepted in October 1998 so it is a relatively new Trust and part of the ScotiaMcLeod/Bank of Nova Scotia family of companies. It is in business to purchase credit card receivables from Bank of Nova Scotia. The Trust has ratings on three separate issues of notes. The rating on the senior notes is AAA, the next ranked notes are rated “A” and the Class C third ranking notes are ranked BBB. The structure is different from the customary credit card structures. (a) There is no 5% letter of credit from a high rated bank. Instead, there is a 5% (3% Series B and 2% Series C) level of subordinate debt. (b) A 5% cash reserve builds up from the excess spread. Since the issue was just completed, very little in cash excess spread has accumulated. (c) The excess spread is building to

8%-10%. On this basis, enhancements are presently near 10%-13%, but will build to 15% as the cash excess spread accumulates. Collectively, the enhancements are attractive. With loss rates below 2% (consistently) the enhancements at present exceed 5 times and will build to 7-8 times as the cash reserve accumulates. The loss rates in this program are less than 1/3 the level prevailing in the U.S., and few problems are foreseen for this Trust. A unique feature of credit card receivables is the very low payment rate at half the level of other banks. This indicates that these credit cards are used more as a source of credit and less as a payment mechanism. However, effective management on behalf of BNS has resulted in strong loss performance nonetheless.

FINANCIAL HIGHLIGHTS (1) ($millions)

Date Trust Share Payment Rate Excess Spread Credit Enhancement

December 1,000 24% 8.70% 13.7%

November 1,000 22% 10.11% 15.17%

October 1,000 23% 5.30% 10.3%

(1) this is a new Trust, and only three months of information exists.

REMAINING DEBT OUTSTANDING - 1998

($millions) December November October September December ‘97 June ’97

Senior Debt Outstanding 950 950 950 0 0 0

Inception Date: October 9, 1998

Seller and Servicer: Bank of Nova Scotia

Underwriter: ScotiaMcLeod Inc.

Legal Structure: A master trust structure with co-ownership interests in a pool of credit card receivables.

Credit Support: A 5% subordination (Class B and Class C notes) replaces the customary 5% letter of credit. Cash reserve builds (from the net interest spread) up to 5% plus the excess spread which is in the 5% range presently.

Mechanics: The Trust will have an undivided co-ownership interest of $1 billion out of a gross portfolio of $2.574 billion in credit card receivables. Scotiabank will retain the residual undivided co-ownership interest in the pool of receivables. Additional Series may be issued in the Trust, each of which will have an undivided co-ownership interest in the $2.6 billion (at inception) pool. Minimum Principal Amount: The minimum principal amount of Receivables in the pool must always be at

least 107% of outstanding notes. New credit card receivables must be added if this ratio falls below 107% as defined.

THE TRUST

Trillium Credit Card Trust is in business to purchase an undivided co-ownership interest in credit card receivables from the Bank of Nova Scotia and is a member of the Bank of Nova Scotia group.

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Securitizations

Information used in this Report comes from sources believed to be reliable, but we cannot guarantee that it, or the opinions in this Report, are complete or accurate. This Report is not to be construed

DBRS

York Receivables Trust II

Current Report: February 1999 Walter Schroeder, CFA Huston Loke / Jireh Wong e-mail: [email protected] (416) 593-5577

CURRENT RATING

AAA Stable Confirmation 1998-1, $540 million - 5.67% Notes - April 21/2002

BBB Stable Confirmation 1998-1, 28.4 million - 6.30% Subordinated Notes - April 21/2002 AAA Stable Confirmation 1998-2, $220 million - 5.69% Notes - December 21/2003

BBB Stable Confirmation 1998-2, $11.6 million - 6.36% Subordinated Notes - December 21/2003

Senior Notes, 1998-1, 1998-2 AAA AAA NR NR NR NR

Subordinate Notes, 1998-1, 1998-2 BBB BBB NR NR NR NR

RATING CONSIDERATIONS

York Receivables Trust II is in business to purchase credit card receivables from the Toronto Dominion Bank. The structure used is a senior/subordinate structure with two separate series of notes. The senior notes are rated “AAA” while both junior series of notes are rated BBB. The respective series of notes have an undivided ownership interest in a $1.5 billion (roughly) pool of receivables. The amount of Notes outstanding is $800 million with Toronto Dominion Bank having an ownership interest ranked on a pari passu basis on amounts beyond $800 million. All three key components used in evaluating credit cards are favourable for the Trust. (1) The spread after net losses of

10% is over 5 times the latest loss rate. The gross yield excluding interchange is extremely favourable and is holding steady. (2) The loss rate is under 2% which is 1/3 the loss rate of credit cards in the United States. (3) The payment rate is near 40% which means that the percentage of the portfolio collected in the month is very high and liquid. The level of enhancements will grow as the 5% cash reserve accumulates from retained net interest income. A unique feature of the program is that interest on the subordinated debt is paid before principal on the senior debt. This feature is unique but is not considered significant.

Inception Date: July 28, 1998

Seller: The Toronto-Dominion Bank Underwriter: TD Securities Inc.

Program Size: $800 million

Structure: Co-ownership interests in a master trust. Both the 1998-1 and 1998-2 Series of Notes have a co-ownership interest in the pool of assets.

Credit Enhancement: A 5% level of subordinate debt plus excess spread which presently exceeds 10%, plus an excess cash reserve which will accumulate to 5% of outstandings.

Interest Payments: The Senior/subordinate structure requires that payments of interest on the Subordinate Notes must be made at all times and in priority to payment of principal on the Senior Notes.

FINANCIAL HIGHLIGHTS

Date Excess Spread Payment Rate Subordinate Debt Credit Enhancement

Dec./98 10.6% 39% 5% 15.6% Nov./98 11.0% 38% 5% 16.0% Oct./98 10.5% 41% 5% 15.5% Sept./98 10.1% 37% 5% 15.1% Aug./98 12.3% 37% 5% 17.3% THE TRUST

York Receivables Trust II is part of the Toronto-Dominion family of trusts and purchases credit card receivables from the Toronto-Dominion Bank.

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Questions on Credit Card Programs in Canada

A. Principles and Structure

(1) Why are credit cards not suited for securitizations?

Answer (1) The average term of credit cards is short and it is difficult to complete a long term financing unless a revolving structure is used. (2) Credit card balances change every day. Thus, a means had to be found to add or subtract daily changes in outstandings while maintainin