Bank of Nova Scotia: DBRS Morningstar assigns AAA rating to Bank of Nova Scotia Global Registered Covered Bond Series CBL37
Series CBL37 (USD 3.5 billion) has a coupon rate of 1.188% and a maturity date of
Strong’s Legal and Structural Framework (LSF) assessment associated with the recorded program.
A credit rating of the hedge portfolio of BBB (high).
An LSF implied probability (LSF-L) of AA.
A two notch lift from the LSF-L for high recovery prospects to reach the
A level of overcollateralisation (CO) of 5.5% (based on the percentage of assets of 94.8% at
DBRS Morningstar has considered the following factors in its analysis described above, each of which includes additional analysis and, where appropriate, adjustments to expected performance assumptions as a result of global efforts to contain the spread of the disease. coronavirus (COVID-19). For the assigned ratings, DBRS Morningstar’s analysis took into account the benchmark macroeconomic scenarios for rated sovereign economies, available in its commentary âBaseline Macroeconomic Scenarios For Rated Sovereignsâ, published on
(1) The Covered Bonds are senior unsecured direct-deposit obligations of BNS and are excluded from
Canada'sbank 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 (the
Cover Pool). The Cover Poolwas approximately $58.6 billionas at August 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 the Cover 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 in
Canada. In addition, the contractual obligations of the transaction parties are supported by Canada'swell-developed commercial and bankruptcy laws, the satisfactory opinions provided by legal counsel to BNS, and a generally creditor-friendly legal environment in Canada.
Despite these strengths, covered bond ratings could face the following challenges:
(1) A weakened housing market in
Canadacould result in higher defaults and/or lower recoveries than the assumptions DBRS Morningstar used in the Cover Pool'scredit 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 at August 31, 2021.
(2) BNS may need to add mortgages to maintain the
Cover Pool, incurring substitution and potential credit deterioration risks. These risks are mitigated by the ongoing monitoring of the Cover Poolto ensure that the OC available is commensurate with the ratings on the Covered Bonds. Based on the latest review of the Cover Pool, DBRS Morningstar considers 3.0% OC, corresponding to the regulatory OC minimum, to be commensurate with the AAAratings.
(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 the
A description of how DBRS Morningstar views 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.
All figures are in Canadian dollars, unless otherwise indicated.
The main methodology is the rating and monitoring of covered bonds (
Related regulatory information under National Instrument 25-101 Designated Rating Organizations is incorporated by reference and can be viewed by clicking on the link under Related Documents or by contacting us at [email protected]
The rated entity or its related entities participated in the rating process for this rating action. DBRS Morningstar has 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 more information on the sensitivity of the assumptions used in the rating process.
More details on the
This note is approved by
The last rating action on the recorded program took place on
For more information on historical DBRS Morningstar default rates published by the
Principal Analyst: Fanfei Gong, Assistant Vice-President, Canadian Structured Finance, Global Structured Finance
Chairman of the rating committee:
Initial rating date:
For more information on this credit or industry, visit www.dbrsmorningstar.com or contact us at [email protected]
Phone. +1 416 593-5577
Main methodology: Rating and monitoring of covered bonds (
Predictive model: Canadian RMBS model (
Date Issued Debt Rated Action Rating Trend Attributesi
United States = Principal Analyst based in the United States
CA = Lead Analyst based at
EU = Lead Analyst based in the EU
E = EU approved
Unsolicited participation with access
Unsolicited participation without access
13-Oct-21Covered Bonds, Series CBL37 New Rating AAA-- CA