Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) for MUFG Securities (Canada), Ltd. at 'A-'.
The Rating Outlook remains Stable. The rating action follows the recent ratings affirmation of MUFG Securities (Canada)'s (MUSCAN) ultimate parent, Mitsubishi UFJ Financial Group (MUFG).
The MUFG group's Long-Term IDRs are at the same level as their 'a-' Viability Ratings (VRs) and Support Rating Floors (SRFs). The affirmation of the IDR and Stable Outlook reflect Fitch's expectation that the group is highly likely to receive extraordinary support from the Japanese sovereign in times of stress. In addition, Fitch expects MUFG group's SRFs to remain at 'A-' and become equalized with the sovereign in the event the sovereign is downgraded to 'A-'. Fitch affirmed Japan's sovereign ratings at 'A' with a Negative Outlook on Aug. 11, 2021.
For more information, see 'Fitch Affirms Ratings on MUFG Group and Affiliates; Outlook Stable' dated Sept. 28, 2021 at www.fitchratings.com.
Key Rating Drivers
MUSCAN's Long-and-Short Term IDRs are linked to those of its indirect ultimate parent company MUFG. In applying Fitch's rating criteria, MUSCAN's IDRs are equalized with those of MUFG, reflecting Fitch's view of MUFG's ability and propensity to support MUSCAN should the need arise. Therefore, Fitch affirmed MUSCAN's Short-Term and Long-Terms IDRs at 'A-'/Outlook Stable and 'F1', respectively.
Fitch expects that MUFG would support MUSCAN as necessary, given that such support would not be material to the group as a whole, and there are no regulatory or country impediments to providing support.
Furthermore, as a member of the MUFG securities global stable of businesses, Fitch views MUSCAN's operations as highly integrated with the wider group. In addition, MUSCAN extracts significant operational, funding and management support from its affiliates. Fitch also believes that MUFG would support MUSCAN for reputational reasons and that a default by MUSCAN would be avoided due to the large reputational risk to the parent.
Given the integration with affiliates and reliance on relationships from MUFG bank affiliates, Fitch views the potential for disposal as unlikely since MUSCAN's franchise value is derived from its brand and based on the MUFG customer network and the economies of scale associated with being a part of MUFG.
MUFG's propensity to support MUSCAN also reflects that MUSCAN is a wholly owned subsidiary; its common branding; legal commitments made by the group to provide support as needed; the absence of cross-default clauses in MUSCAN's funding arrangements; and MUSCAN's performance track record.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
MUSCAN's IDRs are linked to those of its ultimate parent and would be positively affected if there is a positive rating action on MUFG., provided there has been no change in our institutional support assumptions.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
MUSCAN's IDRs are linked to those of its ultimate parent. As such, MUSCAN's IDRs and/or Outlook will be affected by any negative rating action on MUFG. Material changes to MUFG's ability and/or propensity to support MUSCAN could also affect our Institutional Support assessment, which in turn could impact MUSCAN's ratings and/or Outlook.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings are linked to those of the ultimate parent, MUFG.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING PRIOR
MUFG Securities (Canada), Ltd. LT IDR A- Affirmed A-
ST IDR F1 Affirmed F1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com