DBRS Releases August 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 August 31, 2016, 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 also 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 August 31, 2016, the regulatory limit stood at $190 billion (Canadian-dollar equivalent).

During August 2016, there were no new openings with two discontinuations from BNS and RBC.

Euro-denominated covered bonds represent 47.8% of outstanding issuance of $135.5 billion (Canadian-dollar equivalent), followed by U.S. dollar-denominated covered bonds at 35.6%. As of August 31, 2016, the total amount outstanding of structured (legacy) and legislative covered bonds decreased to $16.7 billion and $118.8 billion (Canadian-dollar equivalent), respectively.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.