BNS' In­au­gu­ral Leg­isla­tive Mort­gage Bonds gets AAA rat­ings

The Pak Banker - - 6BUSINESS -

NEW YORK: Credit rat­ing agency Fitch has as­signed an 'AAA'(EXP) rat­ing with Sta­ble Out­look to Bank of Nova Sco­tia's (BNS; ' AA-'/'F1+', Sta­ble Out­look) in­au­gu­ral se­ries of reg­is­tered cov­ered bonds is­sued un­der its newly es­tab­lished leg­isla­tive pro­gram. Fitch's ex­pected rat­ing takes into ac­count a hy­po­thet­i­cal EUR-de­nom­i­nated jumbo is­suance with a soft bul­let ma­tu­rity of up to seven years. The rat­ing of BNS' mort­gage cov­ered bonds is based on the is­suer's long-term Is­suer De­fault Rat­ing (IDR) of ' AA-', Fitch Dis­con­ti­nu­ity-Cap (D-Cap) of ' 3' (mod­er­ate high risk) and the pro­gram's con­trac­tual AP which is ex­pected to be in line with Fitch's ' AAA' breakeven AP of 93.5%. The pro­gram D-Cap is driven by Fitch's mod­er­ate high risk as­sess­ment of both the cover-pool and sys­temic al­ter­na­tive man­age­ment com­po­nents. The cover-pool spe­cific al­ter­na­tive man­age­ment as­sess­ment ad­dresses both the data qual­ity and quan­tity of the his­tor­i­cal per­for­mance data pro­vided by the is­suer. The as­sess­ment of the sys­temic spe­cific al­ter­na­tive man­age­ment re­flects the sig­nif­i­cant roles per­formed post is­suer de­fault by the guar­an­tor, or third par­ties act­ing on its be­half. The guar­an­tor would likely seek bond­holder ap­proval for ma­jor de­ci­sions and need to con­tract other par­ties to per­form im­por­tant func­tions. This as­sess­ment is con­sis­tent across all Cana­dian mort­gage cov­ered bond pro­grams. All other D-Cap com­po­nents have been as­sessed as mod­er­ate risk. The in­au­gu­ral cov­ered bonds are se­cured by a cover pool drawn from an ini­tial in­dica­tive port­fo­lio con­sist­ing of 65,149 unin­sured Cana­dian res­i­den­tial mort­gages to­talling ap­prox­i­mately CAD11.2 bil­lion. As of month-end Jan­uary 2014, the port­fo­lio had a weighted aver­age (WA) cur­rent loan to value (LTV) of 58% and a WA marked-tomar­ket com­bined LTV of 71.7% (as cal­cu­lated by Fitch) re­flect­ing amounts avail­able to be drawn on BNS' Sco­tia To­tal Eq­uity Plan (STEP) multi-com­po­nent mort­gage prod­uct which Fitch takes into ac­count in es­ti­mat­ing the pool's prob­a­bil­ity of de­fault (PD). Ap­prox­i­mately 84% of the loans in the ini­tial port­fo­lio were STEP loans. In ad­di­tion, the cover as­sets had a nonzero WA credit score of 773 and were roughly 24 months sea­soned, with a large per­cent­age of loans con­cen­trated in On­tario (49.6%). The pool's WA ex­pected loss of 6.8% in­cor­po­rates an additional 1.6% loss at­trib­ut­able to in­ter­est ac­crued on de­faulted loans from ini­tial delin­quency through to liq­ui­da­tion. —

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