Series CBL37 (USD 3.5 billion) has a coupon rate of 1.188% and a maturity date of
The
A
A Legal and Structuring Framework (LSF) assessment of Strong associated with the Registered Program.
A Cover Pool Credit Assessment of BBB (high).
An LSF-Implied Likelihood (LSF-L) of AA.
A two-notch uplift from the LSF-L for high recovery prospects to achieve the
A level of overcollateralization (OC) of 5.5% (based on the Asset Percentage of 94.8% as at
DBRS Morningstar considered the following factors in its analysis described above, each of which include additional analysis and, where appropriate, adjustments to expected performance assumptions as a result of the global efforts to contain the spread of the Coronavirus Disease (COVID-19). For the ratings assigned, DBRS Morningstar's analysis considered the baseline macroeconomic scenarios for rated sovereign economies, available in its commentary 'Baseline Macroeconomic Scenarios For Rated Sovereigns,' published on
(1) The Covered Bonds are senior unsecured direct-deposit obligations of BNS and are excluded fromCanada's bank recapitalization (bail-in) regime.
(2) In addition to a general recourse to BNS' assets, the Covered Bonds are supported by a diversified pool of first-lien conventional Canadian residential mortgages with a maximum loan-to-value (LTV) ratio of 80.0% at origination (theCover Pool ).The Cover Pool was approximately$58.6 billion as atAugust 31, 2021 . The Scotia Total Equity Plan (STEP) loans may have amortizing and nonamortizing revolving loan parts secured by the same first lien. Only the amortizing loan parts of the STEP loans are in theCover Pool .
(3) The Covered Bonds benefit from several structural features, such as a reserve fund, when applicable, and rating thresholds for the swap counterparties, servicer, account bank, cash manager, and guaranteed deposit account provider.
(4) Upon a default by BNS, the final maturity date on the Covered Bonds can be extended for 12 months, which increases the likelihood that the Covered Bonds can be fully repaid.
(5) There is a specific covered bond legislative framework inCanada . In addition, the contractual obligations of the transaction parties are supported byCanada's well-developed commercial and bankruptcy laws, the satisfactory opinions provided by legal counsel to BNS, and a generally creditor-friendly legal environment inCanada .
Despite these strengths, the ratings on the Covered Bonds could face the following challenges:
(1) A weakened housing market inCanada could result in higher defaults and/or lower recoveries than the assumptions DBRS Morningstar used in theCover Pool's credit assessment. This risk is significantly reduced by the home equity available in relation to the portfolio's weighted-average LTV ratio of 44.93% (based on indexed property value) reported by BNS as atAugust 31, 2021 .
(2) BNS may need to add mortgages to maintain theCover Pool , incurring substitution and potential credit deterioration risks. These risks are mitigated by the ongoing monitoring of theCover Pool to ensure that the OC available is commensurate with the ratings on the Covered Bonds. Based on the latest review of theCover Pool , DBRS Morningstar considers 3.0% OC, corresponding to the regulatory OC minimum, to be commensurate with theAAA ratings.
(3) There is an inherent liquidity gap between the scheduled repayments of the Covered Bonds and the repayment of the underlying mortgage loans over time. This risk is mitigated by OC, the buildup of a reserve fund if BNS is not rated at least A (low) or R-1 (low), and the 12-month maturity extension upon default by BNS.
BNS is one of
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is Rating and Monitoring Covered Bonds (
The DBRS
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.
More details on the
This rating is endorsed by
The last rating action on the Registered Program took place on
For further information on DBRS Morningstar historical default rates published by the
Lead Analyst: Fanfei Gong, Assistant Vice President, Canadian Structured Finance, Global Structured Finance
Rating Committee Chair:
Initial Rating Date:
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
Tel. +1 416 593-5577
Principal methodology: Rating and Monitoring Covered Bonds (
Link: https://www.dbrsmorningstar.com/research/379983/rating-and-monitoring-covered-bonds
Predictive model: Canadian RMBS Model (
Link: https://www.dbrsmorningstar.com/models/
Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
13-Oct-21 Covered Bonds, Series CBL37 New RatingAAA -- CA
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