DBRS Confirms Reopening of Canada Housing Trust™ No. 1, Series 72 and Series 73 at AAA

DBRS Limited (DBRS) today notes that Canada Housing Trust™ No. 1 (the Trust) has reopened the Floating Rate Canada Mortgage Bonds, Series 72 (the Series 72 CMBs) and the 1.90% Canada Mortgage Bonds™, Series 73 (the Series 73 CMBs and, together with the Series 72 CMBs, the Bonds) by issuing additional Bonds.

The additional Series 72 CMBs will be issued in a principal amount of $2.75 billion (with a total issuance size of $6 billion) and will mature on September 15, 2021 (the Series 72 Final Maturity Date). The structural features of the additional Series 72 CMBs are identical to the outstanding Series 72 CMBs that were issued by the Trust in May 2016. Interest on the Series 72 CMBs in an amount equal to three-month Canadian Dollar Offered Rate for Canadian Dollar Banker’s Acceptances plus 17.5 basis points will be paid quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, until the Series 72 Final Maturity Date, when the final interest and repayment of principal on the Series 72 CMBs will be due.

The additional Series 73 CMBs will be issued in a principal amount of $2.5 billion (with a total issuance size of $4.75 billion) and will mature on September 15, 2026 (the Series 73 Final Maturity Date). The structural features of the additional Series 73 CMBs are identical to the outstanding Series 73 CMBs that were issued by the Trust in May 2016. Interest on the Series 73 CMBs will be paid semi-annually in arrears on March 15 and September 15 of each year, until the Series 73 Final Maturity Date, when the final interest and repayment of principal on the Series 73 CMBs will be due.

The Bonds are backed by a full guarantee (the CMHC Guarantee) provided by Canada Mortgage and Housing Corporation (CMHC) in its capacity as an agent of Her Majesty in Right of Canada. The Bonds are consequently rated at the same level as CMHC’s senior unsecured debt rating of AAA, which mirrors DBRS’s Canadian sovereign rating of AAA for the Government of Canada’s domestic and foreign currency obligations. As an agent of Her Majesty in Right of Canada, CMHC’s debt obligations and guarantees are direct obligations of the Government of Canada. The AAA rating is based solely on the CMHC Guarantee without any review of the underlying collateral, as such information is not provided to DBRS.

The proceeds from this issuance of the Bonds will be used by the Trust to acquire insured residential mortgages in the form of pools of mortgage-backed securities that have been created by CMHC-approved issuers (the Approved Issuers) under the National Housing Act (NHA MBS) and that meet certain eligibility criteria (the Trust Assets). The Approved Issuers will deposit the NHA MBS payment amounts into a designated account, from which the NHA MBS central payor and transfer agent will then make payments to holders of NHA MBS, including the Trust. The Trust will then use the cash flows received from the Trust Assets, as well as hedging agreements, to meet its obligations to Bondholders. All hedging counterparties must be approved by CMHC. The CMHC Guarantee will ensure timely payment to Bondholders in the event that the Trust has insufficient funds to meet its expenses. As a result, the Trust has granted CMHC a first-priority security interest in the Trust Assets to the extent of any payments made to Bondholders under the CMHC Guarantee.

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

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 Structured Finance Flow-Through Ratings (January 2016) and Rating Sovereign Governments (October 2015), which can be found on our website under Methodologies.