This week the National Bank of Canada became the fourth bank to establish a covered bonds program under the 2012 Canadian covered bonds legal framework.

NBC priced a 5-year, €1 billion issuance at 12 basis points over mid-swaps according to a Standard & Poor’s report.  

Moody’s Investors Service assigned preliminary ratings of ‘Aaa’ to the program. According to the presale report, the covered pool consists of a revolving pool of prime, conventional Canadian mortgagse, which totaled CAD5 billion as of Nov. 30, 2013.

All mortgages in the cover pool must meet eligibility criteria that requires them to be in a first lien position, have at least 20% equity and be in a non-delinquent status when place in the cover pool.

Royal Bank of Canada, CIBC and Bank of Nova Scotia have also registered covered bonds program under the new Canadian legislation this year.

 “We expect stable performance from these programs, owing mainly to the strength of the Canadian banks,” Moody’s said in an outlook report on the sector. “Should any bank deteriorate, we expect that it would choose to increase the required over-collateralization to maintain the strength of the program.”



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