DBRS Finalizes Provisional Ratings on Fortified Trust, Series 2019-1 at AAA (sf), AA (high) (sf) and A (high) (sf)

DBRS Limited (DBRS) finalized the provisional ratings on the Real Estate Secured Line of Credit-Backed Notes, Series 2019-1 (the Notes) issued by Fortified Trust (the Trust) as follows:

-- AAA (sf) on the Real Estate Secured Line of Credit-Backed Class A Notes, Series 2019-1 (the Class A Notes),
-- AA (high) (sf) on the Real Estate Secured Line of Credit-Backed Class B Notes, Series 2019-1 (the Class B Notes) and
-- A (high) (sf) on the Real Estate Secured Line of Credit-Backed Class C Notes, Series 2019-1.

The Expected Final Payment Date of the Notes is March 23, 2024.

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), the cash reserve account and excess spread of 1.35% annually (before credit losses).

(2) The pool’s very low and stable level of losses and Bank of Montreal’s (BMO; rated AA/R-1 (high) with Stable trends by DBRS) entire home equity line of credit (HELOC) portfolio is indicative of BMO’s high underwriting standards and excellent collateral quality. The pool has a balance-weighted credit score of 803 as of December 31, 2018.

(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 pool are a well-diversified portfolio of HELOC accounts with a minimum 20% equity in each of the mortgaged properties, which secures the HELOC accounts.

DBRS uses the Canadian residential mortgage-backed securities (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.

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.

BMO is Canada’s fourth-largest bank measured by assets with $806.6 billion and total equity of $47.3 billion as at January 31, 2019. It is the servicer of the assets in the pool.

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

The principal methodology is Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages (November 2018), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below 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.

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