DBRS Releases April 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 April 30, 2013, along with detailed information on this debt market.

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 must be amended prior to the issuance of the covered bonds.

On April 26, 2012, the Canadian federal government introduced covered bonds legislation (the Legislation), which received Royal Assent on June 29, 2012. On December 17, 2012, CMHC released the Canadian Registered Covered Bond Programs Guide (the Guide), as mandated by the Legislation. The Guide sets out, among other things, the terms of the Canadian covered bond registry and continuous disclosure requirements. DBRS views the Guide as positive, as the implementation of the Guide and the enactment of covered bond legislation would provide for the protection of the cover pool upon the bankruptcy of an issuer and is expected to increase the investor base and the liquidity of Canadian covered bonds globally. For detailed comment, please refer to “Covered with Maple: DBRS Comments on Canadian Covered Bond Programs Guide” (December 2012).

On April 22, 2013, DBRS released its commentary titled “Friend, Foe or Frenemy of Canadian Housing? DBRS on Recent Developments in the Canadian Residential Mortgage Market.” In this commentary, DBRS discusses the Canadian federal government’s changes to mortgage rules over the past few years in the residential mortgage market, in an attempt to alleviate the potential impact of unprecedented consumer leverage. Many of these changes have affected consumers directly, by way of tighter mortgage insurance eligibility, while other changes have had more of a direct effect on lenders.

The U.S. debt markets remain an important source of funding for Canadian financial institutions, with total U.S. dollar issuances outstanding currently at $51.3 billion (CAD equivalent), or 84.7% of covered bonds outstanding. As of April 30, 2013, the total amount outstanding in the market was $60.5 billion (CAD equivalent). There were no changes in asset percentage for any programs.

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The full report is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

Ratings disclosed in this report are endorsed by DBRS Ratings Limited for use in the European Union.