DBRS Morningstar Releases October 2020 Canadian Securitization Market Overview Report

DBRS Limited (DBRS Morningstar) released the Canadian Securitization Market Overview report for the month ended October 31, 2020. The report provides an overview of the total Canadian securitization market, including term asset-backed securities (ABS), commercial mortgage-backed securities, and asset-backed commercial paper (ABCP).

The total amount outstanding in the Canadian securitization market, including private placements, was $89.2 billion as at October 31, 2020. Term ABS represented 50.9% of the total securitization market, followed by ABCP at 41.5% and private placements at 7.6%.

Credit cards continued to dominate the Canadian securitization market (excluding private placements), accounting for 32.0% of the total market. Auto-related transactions accounted for 26.7%, followed by residential mortgages at 15.9% and commercial mortgages at 5.9%.

Term ABS and transactions funded in ABCP conduits continued to perform well and were stable in October 2020. Financial assistance provided by the government and lenders to consumer and business obligors have proven effective as delinquencies and loss ratios were lower in October than at the beginning of the lockdown in March 2020. Although the gradual economic recovery in Q3 2020 allowed many businesses and obligors get back on their feet, the risks to transactions into Q4 2020 are the second wave of the pandemic and the potential economic impact that new temporary containment measures may have on already-affected consumers and businesses. Many deferral programs that lenders offered have also ended and extensions are only granted on a case-by-case basis. The end of this support may pressure transaction performance as some accounts may become delinquent and lead to losses.

The government’s introduction of three additional programs (the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, and the Canada Recovery Caregiving Benefit) will continue to provide financial assistance to households directly affected by the Coronavirus Disease (COVID-19) pandemic, which will continue to provide some level of support to credit performance in structured finance transactions.

DBRS Morningstar expects delinquencies and losses to rise, but the extent of the increase will depend on the pace of the economic recovery and the effectiveness and extension of supports from the government and lenders.

DBRS Morningstar has been monitoring the deferral rate of transactions where data is available. A compilation of this data summarizing the ranges for each asset class is provided in DBRS Morningstar’s Monthly Canadian ABS Report and Monthly Canadian ABCP Report. As of October 2020, payment deferrals across all asset classes have declined significantly and are near zero. For ABS transactions, DBRS Morningstar encourages readers to compare the actual ranges of deferrals with the sensitivity analysis provided in DBRS Morningstar's commentary, “Impact of Payment Deferrals on Canadian ABS Transaction Interest Payments,” published on April 9, 2020. All ABCP notes are supported by liquidity facilities that meet the global liquidity standard, with the facility size sufficient to cover the face value and interest accrued of the notes outstanding. The liquidity providers meet DBRS Morningstar’s Global Liquidity Standards, which includes a Liquidity Provider minimum rating threshold of “A” or R-1 (low) by DBRS Morningstar (or equivalent).

With market conditions improving in Canada, programs offered by the Bank of Canada (BoC) to support the functioning of key financial markets have been utilized less frequently by participants. As a result, the BoC reduced the frequency of its Term Repo operations to biweekly from weekly, starting October 21, 2020. In addition, own-name covered bonds, own-name Term ABS, and own-name ABCP are no longer eligible for Term Repo operations. Canadian dollar-denominated marketable securities that are directly issued or explicitly guaranteed by the Government of Canada or by Canadian provincial government and that are eligible for the Standing Liquidity Facility continue to be eligible for regular Term Repo operations.

The outstanding ABS and ABCP notes are well enhanced as of October 2020. DBRS Morningstar will continue to closely monitor the performance of all transactions and will provide updates to the market.

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

The report is available at www.dbrsmorningstar.com.

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

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