BMO Global Registered Covered Bond Series CBL29 is AAA rated by DBRS Morningstar
Series CBL29 covered bonds (USD 2.5 billion) have a coupon rate of 3.750% and a maturity date of
An assessment of Strong’s Legal and Structuring Framework (LSF) associated with the Program.
A coverage group credit rating of “A”.
An implicit likelihood LSF (LSF-L) of
Although not currently applicable, based on the recovery notch scale, up to two notches uplift of the LSF-L for high recovery prospects is possible.
An overcollateralisation (OC) level of 7.0% (based on the percentage of assets of 93.5% at
DBRS Morningstar considered the following factors in its analysis described above:
(1) The Covered Bonds are senior unsecured direct-deposit obligations of BMO and are excluded from
Canada'sbank recapitalization (bail-in) regime.
(2) In addition to a general recourse to BMO's 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 $40.96 billionas at June 30, 2022.
(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 BMO, 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 BMO, 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 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 45.4% (based on indexed property value) reported by BMO as at June 30, 2022.
(2) BMO may need to add mortgages to maintain the
Cover Pool, incurring substitution and potential credit deterioration risk. These risks are mitigated by the ongoing monitoring of the Cover Poolto ensure that the OC available is commensurate with the ratings of 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 BMO is not rated at least A (low) or R-1 (middle), and the 12-month maturity extension upon default by BMO.
BMO is one of
More details on the
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
No environmental/social/governance factor had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors in the DBRS Morningstar Analytical Framework is available in DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/ research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
Unless otherwise stated, all figures are in Canadian dollars.
The main methodology is the rating and monitoring of covered bonds (
Related regulatory information pursuant to National Instrument 25-101 Designated Rating Organizations is incorporated by reference and may be viewed by clicking 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 metric. 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 relevant appendix for more information on the sensitivity of the assumptions used in the rating process.
This note is validated by
The last rating action on this program took place on
For more information on DBRS Morningstar’s historical default rates published by the
Lead Analyst: Fanfei Gong, Vice President, Canadian Structured Finance
Chairman of the rating committee:
Initial listing date:
For more information on this credit or this industry, visit www.dbrsmorningstar.com or contact us at [email protected]
Such. +1 416 593-5577
Main methodology: rating and monitoring of covered bonds (
Predictive model: Canadian RMBS model (
Date Issued Debt Rated Rating Trend Action Attributesi
US = Lead Analyst based in the USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU approved
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25-Jul-22Covered Bonds, Series CBL29 AAA-- New Rating CA