Morningstar DBRS Assigns Provisional Credit Ratings of (P) AAA (sf), (P) AA (high) (sf), and (P) A (high) (sf) to HELOCS Trust, Series 2024-1

DBRS Limited (Morningstar DBRS) assigned provisional credit ratings to the Real Estate Secured Line of Credit-Backed Notes, Series 2024-1 (the Notes) to be issued by HELOCS Trust as follows:

-- (P) AAA (sf) to the Real Estate Secured Line of Credit-Backed Class A Notes, Series 2024-1,
-- (P) AA (high) (sf) to the Real Estate Secured Line of Credit-Backed Class B Notes, 2024-1, and
-- (P) A (high) (sf) to the Real Estate Secured Line of Credit-Backed Class C Notes, 2024-1.

The finalization of the credit ratings is contingent upon receipt of final documents conforming to information already received.

Morningstar DBRS considered the following factors in its analysis:

(1) The levels of credit enhancement provided by subordination (3.90% and 1.90% for the AAA (sf) and AA (high) (sf) rated notes, respectively), a Cash Reserve Account that builds up after the occurrence of a Cash Reserve Event, and the excess spread of 1.35% annually (after the swap) are commensurate with the ratings assigned.

(2) The collateral is a diversified pool of 90,776 real estate-secured, line of credit accounts with a pool balance of $4.1 billion, a weighted-average (WA) Limit-to-Value Ratio of 57% and a WA credit score of 812. The pool also benefits from the WA 115 months of seasoning since origination.

(3) A bankruptcy-remote structure that includes 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 loss levels of Canadian Imperial Bank of Commerce's (CIBC) entire home equity line of credit (HELOC) portfolio have been extremely low and very stable, reflecting CIBC's strong underwriting standards and excellent collateral performance. CIBC is regulated by the Office of the Superintendent of Financial Institutions and is subject to the requirements of Guideline B-20.

Morningstar 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, Morningstar DBRS runs a proprietary cash flow engine of several scenarios to incorporate transaction-specific triggers, assumptions of default timing, potential interest rate mismatch, and a variety of stressed monthly payment rates that are commensurate with the ratings assigned. The result indicated that the Notes, with the proposed structure, could withstand each stress scenario with no loss.

CIBC is one of Canada's largest banks measured by assets of $1,021.4 billion and total equity of $57.8 billion as at July 31, 2024. It is the servicer of the assets in the pool.

Morningstar DBRS notes that the program fees and expenses (which could include indemnity payments) that are payable to the Financial Services Agent are not subordinated to payments to Noteholders, as expected in Morningstar DBRS' Legal and Derivatives Criteria for Canadian Structured Finance. Such fees and expenses are subject to an annual cap and were factored into the cash flow analysis.

Morningstar DBRS' credit ratings on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the Notes are the related Monthly Interest and the related Aggregate Principal Amounts.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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

The principal methodology applicable to the credit rating is Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages (June 28, 2024; https://dbrs.morningstar.com/research/435275).

Other methodologies referenced in this transaction are listed at the end of this press release.

The Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://dbrs.morningstar.com/research/439965.

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@morningstar.com.

The credit rating was 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.

This is a solicited credit rating.

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 a final credit rating on the above-mentioned security is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit 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@morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

Operational Risk Assessments for Canadian Structured Finance (August 6, 2024; https://dbrs.morningstar.com/research/437547)

Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024; https://dbrs.morningstar.com/research/437761)

Predictive model: Canadian RMBS Model (Version 5.0.0.3; https://dbrs.morningstar.com/models)

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.