NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA(EXP)' rating with Stable Outlook to Royal Bank of Canada's (RBC, 'AA'/ F1+', Stable Outlook) Series CB13 USD-denominated jumbo five-year soft bullet mortgage covered bonds.
The bonds are the fourth series of registered issuance following the approval of RBC's program under the recently enacted Canadian covered bond legislation and inaugural CAD-equivalent 5.7 billion issuance (Series CB10, CB11 and CB12).
KEY RATING DRIVERS
The rating of RBC's mortgage covered bonds is based on the issuer's Long-term Issuer Default rating (IDR) of 'AA', Fitch Discontinuity Cap (D-Cap) of 3 (moderate high risk) and the program's contractual asset percentage (AP) of 93%, which provides more protection than Fitch's 'AAA' breakeven AP of 95%. The contractual AP is sufficient to support the rating on an 'AA+' probability of default (PD) basis.
As of August 2013, CAD-equivalent 16.3 billion soft bullet bonds were outstanding under the program. They are secured by a CAD 38.3 billion cover pool consisting of uninsured Canadian residential mortgages. Fitch's AAA breakeven AP is driven by a WA PD of 14.9% and a WA RR of 68.1% on the cover pool in an 'AAA' scenario. The assets have a WA residual maturity of approximately 2.3 years while the covered bonds, including Series CB13, have a WA residual maturity of 4.3 years.
RATING SENSITIVITIES
RBC's covered bonds' rating would be vulnerable to a downgrade if any of the following occurred: (i) the IDR was downgraded by four notches to 'A-', or (ii) the AP that Fitch takes into account in its analysis exceeded 95%. The covered bonds' rating could be maintained even if the D-Cap was reduced to 0 (full discontinuity), subject to a satisfactory level of AP, given the issuer's current IDR of 'AA' which enables the bonds to reach 'AAA' taking only recoveries into account.
Fitch breakeven AP for a given covered bond's ratings will be affected by, among others, the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuances. Therefore it cannot be assumed to remain stable over time.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Covered Bonds Rating Criteria' (Sept. 4, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds ' (May 13, 2013);
--'Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum' (June 3, 2013);
--'Canadian Residential Mortgage Loan Loss Model Criteria' (May 15, 2013)
Applicable Criteria and Related Research:
Canadian Residential Mortgage Loan Loss Model
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708242
Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709665
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155
Covered Bonds Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717321
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=803218
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