DBRS Releases September Canadian Covered Bond Report

DBRS has today released the Monthly Canadian Covered Bond Report, which provides an overview of the Canadian covered bond market for the month ending September 30, 2014, along with detailed information on this debt market.

Canadian covered bond issuances began in 2007, following a letter issued by the Office of the Superintendent of Financial Institutions (OSFI), the regulator of Canadian financial institutions, permitting the issuance of covered bonds provided that the aggregate amount issued by any financial institution not exceed 4% of its total assets (as determined by the numerator of the asset-to-capital multiple). If at any time after issuance the 4% limit is exceeded, the covered bond issuer must immediately notify OSFI. OSFI further stated that the pledging policies of the issuing entity need to be amended prior to the issuance of the covered bonds.

On April 26, 2012, the Canadian federal government introduced covered bonds legislation (the Legislation), which received Royal Assent on June 29, 2012. On December 17, 2012, Canada Mortgage and Housing Corporation (CMHC) released the Canadian Registered Covered Bond Programs Guide (the Guide) as mandated by the Legislation. The Guide sets out, among other things, the terms of the Canadian covered bond registry and continuous disclosure requirements. DBRS views the Guide as positive, as the implementation of the Guide and the enactment of covered bond legislation would provide for the protection of the cover pool upon the bankruptcy of an issuer and are expected to increase the investor base and the liquidity of Canadian covered bonds globally. For detailed comments, please refer to “Covered with Maple: DBRS Comments on Canadian Covered Bond Programs Guide” (December 2012).

The new issuance of covered bonds was dormant after the release of the Guide until July 2013, when CMHC announced the registration of Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC) and Bank of Nova Scotia (BNS) and RBC issued Series CB10. National Bank of Canada (NBC) registered in November 2013, Caisse centrale Desjardins du Québec (CCDQ) in January 2014 and Bank of Montreal (BMO) in April 2014. Toronto-Dominion Bank (TD) registered in June 2014. Now, all seven covered bond issuers existing prior to the introduction of the Legislation have registered their programs.

September 2014 was a record month in covered bond issuance. The market not only saw six placements totalling $10 billion (Canadian dollar equivalent) from RBC, BNS and TD, but this month also marked the first covered bond issuance in British pounds after TD issued Series CBL2 for GBP 900 million.

New issuance volume doubled to $20.1 billion (Canadian dollar equivalent) year to date and reached $33.1 billion (Canadian dollar equivalent) since the first legislative program was registered in July 2013. DBRS expects new issuance to continue for the remainder of the year.

U.S. dollar issuance remains at $53.1 billion (Canadian dollar equivalent), or 62.8% of total covered bonds outstanding. As of September 30, 2014, the total amount outstanding of structured (legacy) covered bonds decreased to $40.6 billion (Canadian dollar equivalent), as TD Series 2 and CIBC CB12 matured and were fully repaid during the month. Legislative covered bonds stood at $43.9 billion (Canadian dollar equivalent). It is the first month legislative covered bonds outstanding is higher than legacy bonds. The trend will continue as legacy bonds are repaid down to zero eventually.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The full report is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

Ratings disclosed in this report are endorsed by DBRS Ratings Limited for use in the European Union.