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Rating Action:

Moody's upgrades ratings of CARDS II Trust Class B subordinated notes, affirms Class A notes

13 Nov 2013

Toronto, November 13, 2013 -- Moody's Investors Service announced today that it has upgraded the ratings of all Class B subordinated notes issued by CARDS II Trust (CARDS II) with remaining terms of more than six months. Moody's also announced today that it has affirmed the ratings of all Class B notes with a maturity of six months or less, as well as the ratings of all the Class A notes, issued by CARDS II. Canadian Imperial Bank of Commerce (CIBC; Aa3 stable, C+/a2 stable, P-1) is the sponsor of CARDS II. (In brackets are the bank's long-term deposit rating, its bank financial strength rating/baseline credit assessment and the corresponding ratings outlooks, as well as the short-term deposit rating).

The complete list of rating actions is as follows:

Issuer: CARDS II Trust, Series 2010-3

2010-3 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2010-3 Class B, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2011-4

2011-4 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2011-4 Class B, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2012-1

2012-1 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2012-1 Class B, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2012-2

2012-2 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2012-2 Class B, Affirmed Baa1 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2012-3

2012-3 ClassA, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2012-3 Class B, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2012-4

2012-4 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2012-4 Class B, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2013-1

2013-1 Class A Notes, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2013-1 Class B Notes, Upgraded to A3 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

Issuer: CARDS II Trust, Series 2013-2

2013-2 Class A, Affirmed Aaa (sf); previously on Jan 30, 2013 Affirmed Aaa (sf)

2013-2 Class B, Affirmed Baa1 (sf); previously on Jan 30, 2013 Affirmed Baa1 (sf)

RATINGS RATIONALES

The Class B ratings upgrade is based on (i) the issuance of subordinated Enhancement Notes on 10 September 2013, which provide additional credit protection to CARDS II's Class A and Class B notes, (ii) CIBC's announcement on 16 September 2013 that it has reached a definitive agreement with The Toronto-Dominion Bank (TD; Aa1 stable, B/aa3 stable, P-1) to sell approximately 50% of its Aerogold card accounts to TD, and has renewed its Aeroplan reward cards partnership with Aimia (not rated), and (iii) our assessment of the credit quality and performance of the accounts remaining in CARDS II following the removal of the Aeroplan reward card accounts.

Addition of Enhancement Notes

On 10 September 2013, CARDS II issued subordinated "Enhancement Notes", which increased the credit enhancement available to each of the outstanding series of CARDS II Class A and Class B notes. For the fixed rate Series 2010-3 transaction, the Class A note subordination amount increased to 8.75% as a result of the issuance of the Enhancement Notes, up from 7.25% previously, while the Class B note subordination amount is now 1.62%, up from zero previously (expressed as a percentage of the total invested amount plus the allocated Enhancement Notes for that series). For all other series with fixed rate coupons, the Class A note subordination amount is now 8.00%, up from 6.50% previously, while the Class B note subordination amount is now 1.60%, up from zero previously. For all floating rate transactions, the Class A note subordination amount is now 11.00%, up from 9.50% prior to the issuance of the Enhancement Notes, while the Class B note subordination amount is now 1.66%, up from zero previously.

Sale of Aerogold Visa accounts and Renewal of Aeroplan Partnership

On 16 September 2013, CIBC announced that it had reached a definitive agreement to sell approximately 50% of CIBC's Aerogold card accounts to TD. CIBC issues reward credit cards that earn Aeroplan airline reward miles. The outstanding receivables generated by the Aerogold Visa credit cards that will be sold to TD amount to approximately $3 billion, accounting for approximately 22% of the current custodial pool balance. Rewards cards such as those affiliated with the Aeroplan program attract higher-quality convenience borrowers who exhibit higher payment rates and lower credit losses than borrowers of general purpose cards. Because the Aerogold accounts perform better than other accounts in the CARDS II custodial pool, we expect CARDS II performance to deteriorate following removal of the Aeroplan reward card account assets to be sold to TD. The additional subordination provided by the Enhancement Notes protects investors from this expected deterioration in the credit quality and performance of the custodial pool. However, with regards to the Class B notes, the current amount of subordination exceeds the amount Moody's considers adequate to maintain the current ratings, creating upward pressure on our Class B note ratings. In addition, uncertainty relating to the scope of the card account removal in the CARDS II trust has now been removed, as CIBC has renewed the Aeroplan reward credit card program and entered into a ten year agreement with Aimia. Under the terms of the agreement with Aimia, CIBC will continue to offer Aeroplan travel rewards cards. This agreement will commence on January 1, 2014, as CIBC's existing agreement with Aimia regarding the Aeroplan incentive program expires on December 31, 2013.

Pool Composition Post Removal

Moody's has reviewed the credit quality and performance of the card accounts expected to remain in CARDS II after the planned removal of Aeroplan accounts, combined with the increase in credit enhancement provided to each of the CARDS II Class A and Class B notes by the recently issued Enhancement Notes, and has concluded that an upgrade to all CARDS II Class B notes with a maturity of six months or longer is warranted.

Moody's has changed its performance expectations for CARDS II Trust's resulting from the removal of Aeroplan accounts. The expected range for the principal payment rate decreased to 32.0%-36.0% (from 36.0%-40.0%), and the net charge-off rate increased to 4.0%-6.0% (from 3.5%-5.5%). The expected range for yield remain at 20.0%-23.0%.

Moody's performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities were rated. Even so, a deviation from the expected range will not necessarily result in a rating action, nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics. The primary sources of assumption uncertainty are the retention rate of the current Aeroplan cardholders and the impact on collateral pool performance metrics after the sale of Aeroplan accounts is completed.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach To Rating Credit Card Receivables-Backed Securities", published April 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in these transaction.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Raymond Lai
Asst Vice President - Analyst
Structured Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Luisa De Gaetano
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's upgrades ratings of CARDS II Trust Class B subordinated notes, affirms Class A notes
No Related Data.
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