DBRS Assigns Provisional Ratings of AAA (sf), AA (high) (sf) and A (high) (sf) to Genesis Trust II, Series 2013-1

DBRS has today assigned provisional ratings to the Real Estate Secured Line of Credit-Backed Notes, Series 2013-1 (the Notes), to be issued by Genesis Trust II (the Trust) as follows:

-- AAA (sf) to the Real Estate Secured Line of Credit-Backed Class A Notes, Series 2013-1
-- AA (high) (sf) to the Real Estate Secured Line of Credit-Backed Class B Notes, Series 2013-1
-- A (high) (sf) to the Real Estate Secured Line of Credit-Backed Class C Notes, Series 2013-1

The ratings are based on the following factors:

(1) The levels of credit enhancement provided by subordination (3.9% and 1.9% for AAA (sf) and AA (high) rated notes, respectively), excess spread of 1.35% annually (before credit losses) available to the AAA (sf) and AA (high) (sf) rated classes and the cash reserve account. The A (high) (sf) rated class is supported by excess spread and the cash reserve account.

(2) The very low and stable level of the loss experience is indicative of the high underwriting standards of the Toronto-Dominion Bank (TD) and excellent collateral quality, which has a balance-weighted credit score of 759 as of June 30, 2013.

(3) The Notes benefit from several structural elements typically found in securitizations in Canada that mitigate default risk and the risks related to the credit deterioration of associated counterparties.

(4) The assets in the custodial pool are a well-diversified portfolio of home equity line of credit (HELOC) accounts underwritten to prime quality obligors with a minimum 20% equity in each of the mortgaged properties, which secures the HELOC accounts.

DBRS uses the Canadian RMBS model to estimate default probability and loss severity on a loan-level basis. Certain assumptions and adjustments were made to reflect the nature of HELOC loans and the potential negative effects from certain credit lines that are secured by second-lien mortgages. As of June 30, 2013, 20% of loans (by balance) were secured by second-lien mortgages.

Based on the Canadian RMBS model outputs, DBRS ran a cash flow model of several scenarios to incorporate transaction-specific triggers, assumptions of default timing, potential interest mismatch and a variety of stressed monthly payment rates that are commensurate with the ratings assigned.

The result was that the Notes with the proposed structure could withstand each stress scenario with no loss. The ability of the Trust to repay interest and principal of the Notes on or before the legal maturity is consistent with the respective ratings assigned.

TD is Canada’s second largest bank, with assets of $835 billion and $50.9 billion in common equity as at July 31, 2013. It is the servicer of the assets in the custodial pool.

Notes:
The applicable methodologies are Rating Canadian Home Equity Lines of Credit (HELOCs) (February 2012), Legal Criteria for Canadian Structured Finance (September 2013) and Derivatives Criteria for Canadian Structured Finance (September 2013), which are available on our website under Methodologies.

The Rule 17g-7 Report of Representations and Warranties is 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 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.