DBRS Confirms Credit Union Central of Saskatchewan at R-1 (low), Stable Trend

DBRS has today confirmed the Commercial Paper rating of Credit Union Central of Saskatchewan (SaskCentral or Central) at R-1 (low) with a Stable trend. The rating remains supported by the healthy credit union system in Saskatchewan (the System), with its defendable market niche in rural areas of the province and high penetration rate among the population. Limited system size, a high cost structure and asset concentration remain key challenges for the System.

The Central’s direct operations are almost totally focused on providing liquidity, clearing and settlement services for the System (including maintaining the liquidity portfolio supported by mandatory System deposits); much of the services provided by other provincial centrals to their respective systems are provided by 84%-owned Concentra Financial Services Association (Concentra). While Central itself is not expected to generate high levels of profitability, this is not a critical aspect of DBRS’s rating methodology for credit union centrals (provided they do not generate ongoing losses) as centrals exist to provide services to their respective credit unions.

Central faces challenges in its exposure to Concentra, which is expected to generate most of Central’s consolidated earnings and internal capital generation for the foreseeable future. While Central does not guarantee any obligations of Concentra, DBRS ascribes a very high level of implied support, as Concentra performs functions that are critical to Central fulfilling its mandate to serve the credit unions of Saskatchewan, particularly in terms of taking deposits in excess of mandatory requirements and providing loans to credit unions. This implied support of Concentra by Central is integral in DBRS’s assessment of both Concentra’s and Central’s ratings.

Under DBRS’s methodology “Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group” Central has been assigned a short-term intrinsic assessment of R-1 (low) and a Support Assessment of SA2 (reflecting DBRS’s expectation of systemic and timely external support by the Government of Saskatchewan). The SA2 does not affect the final Commercial Paper rating of R-1 (low).

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group (April 2011), Global Methodology for Rating Banks and Banking Organisations (June 2012) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website under Methodologies.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.