DBRS Morningstar Finalizes Its Provisional Rating on National Bank of Canada’s NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes at BBB with a Stable Trend

DBRS Limited (DBRS Morningstar) finalized its provisional rating of BBB with a Stable trend on National Bank of Canada’s (National or the Bank) NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes (the Capital Notes).

Following the review of documentation associated with the recent offering, DBRS Morningstar confirmed that the terms of the issuance are consistent with those reviewed at the time the provisional rating was assigned on September 1, 2020. For further details on the provisional rating, please see the DBRS Morningstar press release entitled “DBRS Morningstar Assigns Provisional Rating of BBB, Stable, to National Bank of Canada’s NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes.”

On September 1, 2020, the Bank issued $500 million of Capital Notes that mature on November 15, 2080, and will have an initial five-year fixed rate of 4.300%. DBRS Morningstar notes that the Office of the Superintendent of Financial Institutions granted Tier 1 capital treatment to the Capital Notes.

RATING DRIVERS
An upgrade is unlikely in the short-term given the recent change in trend and challenging operating environment. However, an upgrade could occur should National manage to continue building its franchise and improving its operating performance while limiting the adverse impact on asset quality from the economic downturn.

Conversely, the ratings would be downgraded if there is a sustained deterioration in asset quality, especially from deficiencies in risk management or a prolonged adverse impact from the coronavirus pandemic, which would have a significant impact on profitability.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for National are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong; Funding & Liquidity – Strong; and Capitalization – Strong.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020; https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations)

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

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

This rating is endorsed by DBRS Ratings Limited (DBRS Morningstar) for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The last rating action on this issuer took place on September 1, 2020, when DBRS Morningstar assigned a provisional rating of BBB with a Stable trend to the Capital Notes.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Maria-Gabriella Khoury, Senior Vice President
Rating Committee Chair: Michael Driscoll, Managing Director
Initial Rating Date: February 29, 2000.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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