Morningstar DBRS Releases January 2025 Canadian Securitization Market Overview Report

DBRS Limited (Morningstar DBRS) released the Canadian Securitization Market Overview report for the month ended January 31, 2025. 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 $109.6 billion as at January 31, 2025. ABCP represented 51.4% of the total securitization market, followed by Term ABS (incl. CMBS) at 41.4%, and private placements represented 7.1%.

The Canadian securitization market (excluding private placements) continued to be dominated by credit card and auto-related transactions, which accounted for 31.5% and 24.5%, of the total market, respectively. Residential mortgages accounted for 22.4%, HELOCs accounted for 7.0% and commercial mortgages accounted for 4.0%.

Term ABS and transactions funded in ABCP conduits have been resilient and continued to perform well amid a challenging macroeconomic environment. With 83% of total outstanding notes in the Canadian securitization market being backed by consumer-related obligations, the performance of underlying assets in securitizations continue to be primarily linked to consumers' ability to meet their monthly financial obligations, which is highly correlated with their employment situation.

The higher interest rates worked their way through the economy, removing excess demand and lowering inflation. This prompted the Bank of Canada to cut its benchmark interest rate seven times since June 2024 to 2.75% as of March 2025. The restrictive financial conditions weakened the labour market, causing the unemployment rate to rise to 6.6% in February 2025 from 5.8% at the end of 2023. High borrowing costs combined with a sluggish labour market have resulted in an increase in the number of consumers filing for insolvency. On the other hand, the average consumer savings rate has been high, reported at 6.1% as of Q4 2024, well above the 3.1% average seen in 2019. According to Statistics Canada, the highest- and middle-income earners improved their average net savings, as cost of living pressures generally eased. In addition, the highest incomeearners benefitted from strong investment income gains, which more than offset the increase in mortgage and non-mortgage interest expenses, while middle income-earners cut down on their spending.

Collateral performance in Canadian structured finance transactions has seen some deterioration but remains well within expectations across all asset classes. Securitization pools of unsecured receivables, such as credit cards, have experienced a rise in delinquencies and credit losses, but remain in line with historical levels pre-pandemic. Credit losses in securitization pools of secured receivables on the other hand, have continued to be limited thanks to the recovery value of the assets backing the obligations. High asset resale values are likely to continue to limit losses on defaulted secured receivables, supported by ongoing supply constraints in the housing market, and the normalization of used-vehicle prices at still historically elevated levels.

In general, downside risks to credit performance in securitization pools of secured and unsecured receivables will be partially mitigated by the mostly prime nature of obligors, who demonstrate a strong record of repaying their debts on a timely basis, and conservative assumptions coupled with robust levels of credit enhancement available in the transactions that can withstand a deterioration in macroeconomic activity.

The outstanding ABS and ABCP notes are well-enhanced as of January 2025. Morningstar DBRS closely monitors the performance of all transactions and will continue to provide updates to the market.

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

The report is available at https://dbrs.morningstar.com/.

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

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