Morningstar DBRS Assigns Provisional Credit Ratings of BB to EQB Inc.'s Limited Recourse Capital Notes and Pfd-3 (low) to Non-Cumulative Preferred Shares, Stable Trends
Banking OrganizationsDBRS Limited (Morningstar DBRS) assigned provisional credit ratings of BB to EQB Inc.'s (EQB or the Group) Limited Recourse Capital Notes (Capital Notes) and Pfd-3 (low) to the non-cumulative Preferred Shares. Both trends are Stable.
Morningstar DBRS assigned the provisional credit ratings using EQB Inc.'s (EQB) Long-Term Issuer Rating of BBB with a Stable trend as the starting point, and then applied our standard three notches for both capital instruments. Morningstar DBRS notes that since the Capital Notes would convert to non-NVCC preferred shares, the issuance is being viewed similar to a preferred share issuance.
CREDIT RATING DRIVERS
The credit ratings of the securities will move in tandem with EQB's Long-Term Issuer Rating. Over the longer term, Morningstar DBRS would upgrade EQB's Long-Term Issuer Rating if EQB, together with Equitable Bank, were to progress in diversifying funding sources, particularly through more stable direct-to-consumer channels, and revenue, through higher noninterest income, while maintaining sound asset quality.
Conversely, a downgrade of EQB's Long-Term Issuer Rating would result in a downgrade of the securities' credit ratings. Morningstar DBRS would downgrade the Group's Long-Term Issuer Rating if there were significant losses in the loan portfolio as a result of unforeseen weakness in underwriting and/or risk management, disproportionate growth in commercial originations that weaken the risk profile, or substantive funding pressure caused by deposit outflows.
CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good/Moderate
Earnings Combined Building Block (BB) Assessment: Good/Moderate
Risk Combined Building Block (BB) Assessment: Strong/Good
Funding and Liquidity Combined Building Block (BB) Assessment: Moderate
Capitalization Combined Building Block (BB) Assessment: Good
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATION
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
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 http://dbrs.morningstar.com.
A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.
The credit ratings were initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
These are solicited credit ratings.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.
For more information on this credit or on this industry, visit http://dbrs.morningstar.com.
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