DBRS Confirms All Ratings of Genesis Trust

As part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants, DBRS has today confirmed the ratings of all the outstanding notes issued by Genesis Trust (the Trust) as follows:

–Line of Credit Receivables-Backed Notes, Series 2006-2, Class A at AAA (sf)
–Line of Credit Receivables-Backed Notes, Series 2006-2, Class B at AA (sf)
–Line of Credit Receivables-Backed Notes, Series 2006-2, Class C at “A” (sf)
–Line of Credit Receivables-Backed Notes, Series 2006-4 at AAA (sf)

The ratings are based on the following factors:

(1) For the Series 2006-2 notes, credit enhancement is available through subordination (3.9% and 1.9% for the Class A and Class B notes, respectively) and excess spread, which is approximately 1.35%.

(2) For the Series 2006-4 notes, credit enhancement is available through a letter of credit (LC) of 3.9% provided by The Toronto-Dominion Bank (TD) and excess spread, which is also approximately 1.35%.

(3) Average annualized loss rates have been consistently low, at about one basis point.

(4) All accounts are secured by mortgages on residential properties with a maximum loan-to-value (LTV) of 80%.

For each series, the Trust entered into a swap agreement with TD under which the Trust pays the weighted-average rate of yield on the receivables less 1.35%, based on the series amount, and, in return, receives its cost of funds based on the same notional amount. The interest spread of 1.35% created through swaps is available to cover losses allocated to the series. If TD fails to maintain a rating of A (high) or R-1 (middle), within 30 days, it must post additional eligible collateral or be replaced by, secure a guarantee from or assign its obligations to another entity that meets the ratings threshold above, as outlined in the DBRS methodology “Swap Criteria for Canadian Structured Finance Transactions” (see Related Research below).

The Trust participates in a co-ownership structure, which means the proceeds from each series of notes were used to purchase an undivided co-ownership interest in the receivables of the designated accounts in the custodial pool. Each co-ownership interest is separate from and in addition to co-ownership interests previously created. TD, as the seller, retains the residual undivided co-ownership interest (the Retained Interest) in the custodial pool. The receivables include all amounts owing under the designated accounts, including interest charges and any other fees charged to the account holders and the unpaid principal amount of the receivables. The Retained Interest is at least 15% for the notes.

As the accounts are sold on a fully serviced basis, no servicing fee is paid to TD as long as TD is the servicer. TD may remit collections on each distribution day, with no obligation to segregate the collections from its general funds, as long as it maintains a minimum rating of BBB (low). If the servicer fails to maintain this rating, remittance of collections to the account in the name of the custodian will be required within two business days of processing.

Notwithstanding the stated expected final payment dates of the notes, certain events may result in early repayment or delays of one or more series. Such events are called amortization events. Following the occurrence of a series amortization event, collections allocable to this series (and drawings of the LC, if applicable) will be directed first to pay Trust expenses and interest on the series notes and then to repay outstanding principal of the most senior class of notes until they are fully repaid. Principal repayments of lower-ranked notes, if applicable, will be made only after more senior notes have been repaid in full. Essentially, this provides the more senior notes preferential access to the cash flows generated from the receivables for principal repayments in an amount equal to the subordination available for the senior class of notes.

The home equity line of credit (HELOC) accounts in the custodial pool provide for credit on a revolving basis and are secured by mortgages with a maximum LTV of 80%. These HELOC accounts are originated and managed by TD, as seller and servicer, according to its underwriting standards and credit and collection policies. In order to be eligible for transfer to the custodial pool, accounts must meet certain criteria. There are also restrictions on account additions by TD, as seller, to ensure consistent credit quality of the custodial pool. Mortgage security remains registered in the name of TD. If TD fails to maintain a minimum rating of BBB, registered title to all mortgages will be transferred to the custodian to enforce the mortgage obligations directly against the mortgagors if necessary.

As the Trust participates in a co-ownership structure, all series of notes are supported by the same pool of receivables and generally issued under the same requirements with respect to servicing, accumulation period, amortization events, priority of distributions and eligible investments. However, these requirements may be series specific. For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

DBRS monitors the performance of the transactions to identify any deviation from DBRS’s expectation at issuance and to ensure that the ratings remain appropriate. The review is predicated on the timely receipt of performance information from the related providers. The performance and characteristics of the custodial pool and the notes are available and updated each month in the “Monthly Canadian ABS Report” (see Related Research below).

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

The applicable methodologies are Rating Canadian Home Equity Lines of Credit (HELOCs), Legal Criteria for Canadian Structured Finance and Swap Criteria for Canadian Structured Finance Transactions, which are available on our website under Methodologies.