A new Canada-only securities transaction collateralized by a co-ownership interest in a pool of residential property-secured lines of credit—Genesis Trust II, Series 2013-1—could prove to be a model for future deals of interest to U.S. investors.
An analyst at Moody’s Investors Service who worked on the presale report said similarly structured credit card transactions by other Canadian companies have been about 50% sold to U.S. buyers.
Moody’s has assigned prospective ratings of (P)Aaa(sf), (P)Aa2(sf) and (P)A2(sf) to three classes of notes in the deal sponsored by The Toronto-Dominion Bank.
“The ratings are based primarily on the level of credit enhancement available in the proposed capital structure to cover losses in a variety of stress scenarios,” Moody’s said. “Excess spread provides the first source of credit enhancement to all of the classes of notes through an interest rate swap with TD as the counterparty.
“The swap arrangement provides the trust 1.35% in annual excess spread, payable monthly. In addition, Class A notes further benefit from the subordinate Class B notes, which constitute 2% of total issuance, and the Class C notes, which constitute 1.9%.”
In the presale report, Moody’s found 80% of the pool—based on credit limit—are first liens on residential properties in Canada. Second liens and a much smaller proportion of third liens comprise the remaining 20%.
Moody’s finds the deal has strengths that include weighted average credit limit-to-value ratio of 65.23% as well as a low level of credit losses to date. Risks cited include a geographic concentration in Ontario and the extended
