DBRS Releases September Monthly 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, 2011. The report provides detailed information on this debt market, which was previously included in the Monthly Canadian ABS Report.

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.

Unlike in many European countries, there is no explicit legislation in Canada for covered bonds at this point that prescribes asset segregation upon an issuer’s insolvency without having to transfer assets off balance sheet. Following the federal government’s announcement in the 2010 budget to create a covered bond legislative framework (the Proposed Legislation), a consultation paper was released by the federal Department of Finance on May 11, 2011. DBRS notes that building a legislative landscape in Canada that is free of conflicts, inconsistencies or ambiguities would help promote the health and resiliency of financial markets generally.

Canadian issuers continue to take advantage of the U.S. debt markets for a source of funding, with U.S.-dollar denominated covered bond issuances reaching USD 14.5 billion year-to-date. This accounted for 78% of total new covered bond issuances from Canadian financial firms in 2011. The Programme Asset Percentage has been lowered for Canadian Imperial Bank of Commerce to 92.7% in September from 92.9% in August.

The covered bond market remains very active, with three new issuances from Canadian financial institutions in the month of September. The Toronto-Dominion Bank issued USD 2 billion and USD 3 billion in Series 2 and 3 Notes, respectively, under its Global Public Sector Covered Bond Programme, and Canadian Imperial Bank of Commerce issued USD 2 billion in Series 12 Notes under its Global Public Sector Covered Bond Programme. As of September 30, 2011, the total amount outstanding in the market was $43.2 billion (Canadian-dollar equivalent).

The full report is available by clicking on the link below or by contacting us at info@dbrs.com.