Morningstar DBRS Releases February 2025 Canadian ABCP and Enhanced ABCP Reports

DBRS Limited (Morningstar DBRS) released the enhanced version of the Monthly Canadian ABCP Report (the Enhanced ABCP Report) in conjunction with the Monthly Canadian ABCP Report for the month ended February 28, 2025.

Morningstar DBRS provides the asset-backed commercial paper (ABCP) market data in Excel form.

The Enhanced ABCP Report offers additional metrics, longer data series, definitions, and charts that provide the user with both a numeric and a graphic presentation to allow for a quick review of the overall performance and trends for each transaction, as well as the benchmarking of transactions within an asset class.

The Enhanced ABCP Report can be accessed from the Monthly Canadian ABCP Report, once it has been downloaded to a desktop, by clicking on the specific deal number within each conduit.

As at February 2025, the total amount of ABCP notes outstanding decreased 6.66% to $52.6 billion from $54.9 billion in the previous month.

During February 2025,
There was one new transaction added:
-- One residential mortgage transaction (#107) was added in TD conduits.

There were three maturities:
-- One equipment finance transaction (#18) was repaid in Fusion Trust,
-- One equipment finance transaction (#55) was repaid in CIBC conduits,
-- One equipment finance transaction (#79) was repaid in TD conduits.

Residential mortgage programs represent the majority of total assets funded within ABCP conduits at 42.7%, followed by Auto-related transactions at 37.5%, and equipment finance at 5.5%.

ABCP transactions 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. Although the Bank of Canada has been loosening the monetary policy to boost economic growth, the impact from the U.S. trade war is likely to disrupt the recovery in the labour market and lead to an increase in unemployment. The unemployment rate increased to 6.7% in March2025 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.

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 ABCP Notes were well-enhanced as of February 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 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.

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

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