Bank of Nova Scotia plans to issue the first covered bonds from its registered covered bond program.

The euro denominated issuance has not been sized. DBRS assigned a provisional rating of ‘AAA’ to the Series 1 covered bonds. A diversified collateral pool of first-lien, conventional Canadian residential mortgages, with a maximum LTV of 80%, supports the transaction.  

According to DBRS' presale report, the bonds also benefit from structural enhancements that mitigate refinancing risk as well as risks related to credit deterioration of program counterparties. These features include a minimum amount of asset over collateralization, a reserve fund that will be available in the event Bank of Nova Scotia’s rating (currently ‘AA’) falls below ‘A’, and minimum rating thresholds for the account bank, GDA provider, cash manager, swap counterparties and servicer.

Bank of Nova Scotia is Canada’s third largest bank, with assets of $782.8 billion and $42.4 billion in common equity as of Jan. 31, 2014.  It registered its program with the Canadian government in July 2013.

Canada introduced a legal framework for covered bonds in 2012, forcing issuers to scrap their existing programs. 

Most banks including Canadian Imperial Bank of Commerce (CIBC), the National Bank of Canada, Royal Bank of Canada (RBC), Caisse Centrale Desjardins and BNC have both registered covered bond programs with the Canada Mortgage and Housing Corp (CMHC ) and issued covered bonds.   Two more firms that were regular issuers in the past, Toronto-Dominion Bank and Bank of Montreal, have yet to register new covered bond programs.

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