DBRS Confirms Central 1 Credit Union at R-1 (middle), A (high) and “A”

DBRS has today confirmed the Short-Term Notes, Medium & Long-Term Senior Notes & Deposits and Subordinated Debt ratings of Central 1 Credit Union (Central 1) at R-1 (middle), A (high) and “A”, respectively. All trends are Stable.

At close of business on June 30, 2008, Credit Union Central of British Columbia (CUCBC) changed its name to Central 1 Credit Union and, on the following day, acquired substantially all of the assets and liabilities of Credit Union Central of Ontario Limited (CUCO). The business combination brought together the largest (British Columbia) and second largest (Ontario credit unions that were members of CUCO) credit union systems outside of Québec. Financial statements and ratings histories prior to this date represent CUCBC. DBRS views this initiative as a logical course of action to create a stronger, more capable and potentially more efficient central organization, which will be better suited to serve the systems’ needs as credit unions become larger and more sophisticated. Prior to the business combination, a special purpose vehicle (the Ontario ABCP Limited Partnership) was formed to hold CUCO’s Montréal Accord asset-backed commercial paper (ABCP) securities, with substantially all risk and reward transferred to the Ontario member credit unions; this removed a critical roadblock in completing the transaction.

Earnings at member credit unions in both Ontario and British Columbia were comparatively strong in 2008, although deteriorating economic conditions in both provinces suggest some near-term pressure on earnings, both as a result of slower revenue growth rates and the expectation of increasing loan loss provisions.

The primary considerations in determining the ratings are the low-risk business profiles and strong asset quality and financial risk profiles of the British Columbia and Ontario credit unions that are members of Central 1. The business combination of the former CUCBC and CUCO to create Central 1 imparts a number of benefits, including improved regional diversification, increased flexibility with a larger Central 1 balance sheet compared with the larger credit union members, as well as the future potential for improved efficiencies through economies of scale. Integration risks, however, are likely to remain for several years to come.

Under DBRS’s global rating methodology for banks and bank-like financial institutions, Central 1’s Medium & Long-Term Senior Notes & Deposits rating is composed of an intrinsic rating of “A” and a support assessment of SA2; the SA2 designation, which reflects the somewhat unusual situation of the anticipation of government support for the British Columbia system and the Ontario credit union members through Central 1 from the governments of British Columbia and Ontario, respectively, results in a one-notch rating benefit to the intrinsic assessment.

Notes:
The applicable methodology is Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group, which can be found on our website under Methodologies

This is a Corporate (Financial Institutions) rating.