DBRS Finalizes Provisional Ratings on Genesis Trust II, Series 2015-2 at AAA (sf), AA (high) (sf) and A (high) (sf)

DBRS Limited (DBRS) has today finalized the provisional ratings on the Real Estate Secured Line of Credit-Backed Notes, Series 2015-2 (the Notes) issued by Genesis Trust II (the Trust) as follows:

-- AAA (sf) on the Real Estate Secured Line of Credit-Backed Class A Notes, Series 2015-2 (the Class A Notes)
-- AA (high) (sf) on the Real Estate Secured Line of Credit-Backed Class B Notes, Series 2015-2 (the Class B Notes)
-- A (high) (sf) on the Real Estate Secured Line of Credit-Backed Class C Notes, Series 2015-2 (the Class C Notes)

The Expected Final Payment Date of the Notes is September 17, 2018.

The ratings are based on the following factors:

(1) The levels of credit enhancement provided by subordination (3.9% and 1.9% for the Class A Notes and Class B Notes, respectively), excess spread of 1.35% annually (before credit losses) available to the Class A Notes and Class B Notes and the cash reserve account. The Class C Notes are 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 764 as of July 31, 2015.

(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 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- or third-lien mortgages. As of July 31, 2015, 11.5% of loans (by balance) were secured by second- or third-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.

TD is one of Canada’s largest banks by assets, with $1,099.2 billion assets and $66.0 billion total equity as at July 31, 2015. It is the servicer of the assets in the custodial pool.

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

The applicable methodologies are Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages (November 2014), Legal Criteria for Canadian Structured Finance (August 2015) and Derivatives Criteria for Canadian Structured Finance (August 2015), which are available on our website under Methodologies.

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.