Fitch Assigns Final 'AAA' Rating to NBC's Inaugural Legislative Mortgage
NEW YORK -- December 17, 2013
Fitch Ratings has assigned a final 'AAA' rating with a Stable Outlook to
National Bank of Canada's (NBC, 'A+'/F1', Stable Outlook) inaugural series of
registered covered bonds issued under its newly established legislative
program. The series CBL1 bonds have a par value of EUR 1 billion and a
five-year maturity with a 12-month extension.
KEY RATING DRIVERS
The rating of NBC's mortgage covered bonds is based on the issuer's Long-term
Issuer Default Rating (IDR) of 'A+', Fitch Discontinuity-Cap (D-Cap) of 3
(moderate high risk), and the program's contractual asset percentage (AP)
which is expected to be in line with Fitch's 'AAA' breakeven AP of 91.7%.
The program D-Cap is driven by Fitch's moderate high risk assessment of the
systemic alternative management component of its discontinuity analysis which
is the result of the significant roles performed post issuer default by the
guarantor, or third parties acting on its behalf. The guarantor would likely
seek bondholder approval for major decisions and need to contract other
parties to perform important functions. This assessment is consistent across
all Canadian mortgage covered bond programs. All other D-Cap components have
been assessed as moderate risk.
The inaugural covered bonds are secured by a cover pool drawn from an initial
indicative portfolio consisting of 35,271 uninsured Canadian residential
mortgages totaling approximately CAD5.5 billion. The portfolio had a weighted
average (WA) original combined loan-to-value (LTV) of 73.1%, a non-zero WA
credit score of 734, and was roughly 17 months seasoned, with a large
percentage of loans concentrated in Quebec (61%) as of June 2013. Fitch's
'AAA' breakeven AP of 91.7% is driven by a WA probability of default of 22.6%
and a WA recovery rate of 57.9% on the cover pool in an 'AAA' scenario. The
assets have a WA residual maturity of approximately 2.6 years while the first
series of covered bonds have a WA residual maturity of five years.
NBC's covered bonds' rating would be vulnerable to a downgrade if any of the
following occurred: (i) the IDR was downgraded by two notches to 'A-'; (ii)
the D-Cap fell by two categories to 1 (very high risk); or (iii) the program's
contractual AP that Fitch takes into account in its analysis exceeded 91.7%.
Fitch's breakeven AP for a given covered bond's ratings will be affected by,
among others, the profile of the cover assets relative to outstanding covered
bonds, which can change over time, even in the absence of new issuances.
Therefore it cannot be assumed to remain stable over time.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Covered Bonds Rating Criteria' (Sept. 4, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13,
--'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative
Addendum' (May 13, 2013);
--'Covered Bond Rating Criteria - Mortgage Liquidity and Refinance Stress
Addendum' (June 3, 2013);
--'Canadian Residential Mortgage Loan Loss Model Criteria' (May 15, 2013).
Applicable Criteria and Related Research:
Canadian Residential Mortgage Loan Loss Model
Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative
Counterparty Criteria for Structured Finance and Covered Bonds
Covered Bonds Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Brian Bertsch, New York, +1 212-908-0549
Press spacebar to pause and continue. Press esc to stop.