DBRS Releases December Canadian Covered Bond Report

DBRS Limited (DBRS) has today released the Monthly Canadian Covered Bond Report, which provides an overview of the Canadian covered bond market for the month ending December 31, 2015, 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 does not exceed 4% of its total assets. If at any time after issuance the 4% limit is exceeded, the covered bond issuer must immediately notify OSFI and must provide a proposal showing how the excess is planned to be eliminated. OSFI further stated that the pledging policies of the issuing entity need to 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, Canada Mortgage and Housing Corporation (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.

The new issuance of covered bonds was dormant after the release of the Guide until July 2013, when CMHC announced the registration of Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC) and Bank of Nova Scotia (BNS). National Bank of Canada (NBC) registered in November 2013, Caisse centrale Desjardins du Quebec (CCDQ) in January 2014 and Bank of Montreal (BMO) in April 2014. Toronto-Dominion Bank (TD) registered in June 2014. Now, all seven covered bond issuers existing prior to the introduction of the Legislation have registered their programs.

In December 2014, OSFI revised the calculation of the covered bond limit as a result of the adoption of the Basel Leverage Ratio. From 2015 onward, total assets are defined using a select number of data points from the Leverage Requirements Return and the Basel Capital Adequacy Return. The current measure of total assets is broadly equivalent to the Asset-Capital Multiple numerator that was previously used. As of December 31, 2015, the regulatory limit stood at $180.0 billion (Canadian-dollar equivalent).

During December 2015, there were three new covered bond issuances by RBC and CIBC. RBC issued EUR 298.5 million while CIBC issued EUR 1.25 billion and CHF 200 million, leading new issuances in 2015 to increase to $41.2 billion (Canadian-dollar equivalent).

U.S.-dollar outstanding issuance is at $46.0 billion (Canadian-dollar equivalent), or 41.2% of total covered bonds outstanding of $111.7 billion (Canadian-dollar equivalent). As of December 31, 2015, the total amount outstanding of structured (legacy) covered bonds remained at $23.7 billion (Canadian-dollar equivalent); however, legislative covered bonds increased to $88.0 billion (Canadian-dollar equivalent) as there were three new series issued by RBC and CIBC.

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

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.