Bank of Nova Scotia: DBRS Morningstar assigns AAA rating to Bank of Nova Scotia Global Registered Covered Bond Series CBL37

DBRS Limited (DBRS Morningstar) assigned a rating of AAA covered bonds, series CBL37 (series CBL37) issued under the Bank of Nova Scotia (Registered Global Covered Bond Program) (the Registered Program).

Series CBL37 (USD 3.5 billion) has a coupon rate of 1.188% and a maturity date of October 13, 2026. All covered bonds issued under the registered program (covered bonds) rank pari passu with each other and are currently rated AAA by DBRS Morningstar.

The AAA ratings are based on the following analytical considerations:

A Covered bond attachment point of AA, which is the senior long-term debt rating for The Bank of Nova Scotia (BNS). BNS is the reference entity for the registered program.

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 AAA odds.

A level of overcollateralisation (CO) of 5.5% (based on the percentage of assets of 94.8% at August 31, 2021) to which DBRS Morningstar gives credit.

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 “Baseline Macroeconomic Scenarios For Rated Sovereigns”, published on September 8, 2021. These benchmark macroeconomic scenarios replace the moderate and adverse coronavirus pandemic scenarios from DBRS Morningstar, which were first published in april 2020. The benchmark macroeconomic scenarios reflect DBRS Morningstar’s view that while the coronavirus remains a risk to the outlook, the uncertainty surrounding the macroeconomic effects of the pandemic has gradually faded. The current median forecasts taken into account in the benchmark macroeconomic scenarios incorporate some risks associated with new epidemics, but they remain fairly positive on the outlook for recovery given the expectations of continued support for fiscal and monetary policies. The political response to the coronavirus could nonetheless bring other risks to the fore in the months and years to come. For details, see

(1)	The Covered Bonds are senior unsecured direct-deposit obligations of BNS and are excluded from Canada'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 (the Cover Pool). The Cover Pool was approximately $58.6 billion as 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's well-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 Canada could result in higher defaults and/or lower recoveries than the assumptions DBRS Morningstar used in the Cover 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 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 Pool to 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 AAA 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 the from Canada the largest banks as measured by assets in July 31, 2021, with assets of $ 1,163.4 billion and the total equity of $ 72.1 billion. It is the initial mortgage manager in the Indoor swimming pool.

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: / / 373262.



All figures are in Canadian dollars, unless otherwise indicated.

The main methodology is the rating and monitoring of covered bonds (June 10, 2021), which can be found on under Methodologies and Criteria.

DBRS Sovereign Morningstar the group publishes benchmark macroeconomic scenarios for rated sovereigns. The DBRS Morningstar analysis took into account the impacts consistent with the baseline scenarios as presented in the following report: to-credit-ratings.

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 Indoor swimming pool and the registered program are provided in the Canadian Covered Bond Monthly Report, which is available at or by contacting us at [email protected]

This note is approved by DBRS Ratings Limited for use in the UK, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory information applies to approved ratings:

The last rating action on the recorded program took place on October 4, 2021, when DBRS Morningstar discontinued its rating of Covered Bond Series CBL17 because the series was fully redeemed.

For more information on historical DBRS Morningstar default rates published by the European titles and Autorité des marchés (ESMA) in a central repository, see: DBRS Morningstar understands that additional information on historical DBRS Morningstar default rates may be published by the Financial conduct authority (FCA) on its web page:

Principal Analyst: Fanfei Gong, Assistant Vice-President, Canadian Structured Finance, Global Structured Finance

Chairman of the rating committee: Tim o’neil, Managing Director, Head of Canadian Structured Finance

Initial rating date: March 25, 2014

For more information on this credit or industry, visit or contact us at [email protected]

DBRS Limited

DBRS Tower, 181 University Avenue, office 700

Toronto, Ontario M5H 3M7 Canada

Phone. +1 416 593-5577

Main methodology: Rating and monitoring of covered bonds (June 10, 2021)


Predictive model: Canadian RMBS model (October 2020; Version



Date Issued	Debt Rated	Action	Rating	Trend	Attributesi

United States = Principal Analyst based in the United States

CA = Lead Analyst based at Canada

EU = Lead Analyst based in the EU

UK = Senior analyst based at UK

E = EU approved

U = UK approved

Unsolicited participation with access

Unsolicited participation without access

Unsolicited Non-participant

13-Oct-21 	Covered Bonds, Series CBL37	New Rating	AAA	--	CA

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