DBRS Confirms Storm King Funding Series 1 Asset-Backed Commercial Paper Notes at R-1 (high) (sf)

DBRS Limited (DBRS) has today confirmed the rating of the Series 1 Asset-Backed Commercial Paper Notes (the Notes) issued by Storm King Funding (the Trust) at R-1 (high) (sf) as part of its annual review of publicly rated asset-backed commercial paper (ABCP) conduits. The confirmation is part of DBRS’s continued effort to provide timely credit rating opinions and increased transparency to market participants.

The Trust is a multi-seller, multi-asset securitization conduit administered by the Royal Bank of Canada (RBC; rated AA, Negative trend, by DBRS). The Trust engages in only traditional asset transactions. Assets and/or interest acquired by the Trust from sellers (the Assets) are subject to eligibility criteria and/or confirmation from DBRS. As at June 30, 2016, outstanding Assets consisted of floorplan (36%), auto leases (25%), auto loans (18%), auto fleet (12%), insured mortgages (9%) and conventional mortgages (0%).

The rating confirmation is based on the following considerations:

(1) Credit enhancement levels are consistent with similarly rated programs in Canada. From inception, each transaction is structured to achieve a AAA standard on a stand-alone basis (unless other structural elements or mitigants that are acceptable to DBRS are available to that transaction, such as program-wide credit enhancement (PWCE), enhanced liquidity or full wrap liquidity, to achieve that level).

(2) In addition to the internal credit enhancement, all transactions in the Trust have third-party enhancement available to maintain the R-1 (high) (sf) rating on the Notes. Third-party credit enhancement is provided to the Trust by RBC in the form of PWCE in an amount up to 10% of the face amount of the outstanding Notes (other than transactions supported by “wrapped liquidity”). Because of certain Events of Default associated with drawings in excess of 20% of the PWCE, DBRS will only allocate a maximum of 20% of available PWCE to enhance the ratings of transactions.

(3) The liquidity facilities meet DBRS’s Global Liquidity Standard (GLS) and are available to assist the Trust in repaying the Notes in the event that the Trust is not able to issue new Notes to do so. The commitment amount is equal to at least 102% of the face value (including interest) of all outstanding Notes.

(4) Minimum credit ratings of A (high) or R-1 (middle) by DBRS (or equivalent) for liquidity providers, credit enhancers and hedge counterparties are required, unless otherwise approved by DBRS.

(5) The Assets, through Securitization Agreements, are typically structured to be bankruptcy remote from the sellers, and the bankruptcy remoteness is supported by legal opinions.

(6) All transactions are reviewed by DBRS prior to initial funding by the Trust.

(7) The performance of the underlying collateral across all asset classes is strong.

(8) RBC has significant experience in structuring, administering and managing multi-asset, multi-seller securitization programs.

RBC administers two multi-seller conduits in Canada, with an aggregate ABCP outstanding amount of $4,097,483,363 as at June 30, 2016.

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 Rating Canadian ABCP and Related Enhancement Features (March 2016), Master Canadian Structured Finance Surveillance Methodology (May 2016), Legal Criteria for Canadian Structured Finance (July 2016) and Derivatives Criteria for Canadian Structured Finance (July 2016), which are available on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.