DBRS Morningstar Finalizes Its Provisional Rating on Canadian Western Bank’s NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes at BB (high) with a Negative Trend

DBRS Limited (DBRS Morningstar) finalized its provisional rating of BB (high) with a Negative trend on Canadian Western Bank’s (CWB 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 October 23, 2020. For further details on the provisional rating, please see the DBRS Morningstar press release entitled “DBRS Morningstar Assigns Provisional Rating of BB (high), Negative, to Canadian Western Bank’s NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes.”

The Bank plans to issue $175 million of Capital Notes on October 30, 2020. The Capital Notes mature on April 30, 2081, and will have an initial five-year fixed rate of 6.00%. DBRS Morningstar notes that the Office of the Superintendent of Financial Institutions granted Tier 1 capital treatment to the Capital Notes.

RATING DRIVERS
Given the Negative trend, an upgrade is unlikely at this time. The trend could change to Stable if the impact of the current economic crisis on CWB’s earnings and credit quality metrics is manageable.

Conversely, material losses in the loan portfolio as a result of the oil price shock and a longer-than-expected adverse impact of the Coronavirus Disease (COVID-19) pandemic, or significant pressures on funding and liquidity, could result in a rating downgrade.

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 CWB are as follows: Franchise Strength – Good; Earnings Power – Good; Risk Profile – Good/Moderate; Funding & Liquidity – Strong/Good; and Capitalization – Good.

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.

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

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

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