Fitch Ratings has given a new covered bond issue from Royal Bank of Canada a AAA rating.

DBRS notes that the new $750 million issue is the first covered bond issuance by a Canadian financial institution in that past year. And, it points out that this is the first Canadian covered bond issuance purchased predominantly by Canadian investors.

The rating agency says that it considers this to be a positive step for Canadian covered bonds “as investors in Europe have commented to DBRS on the importance of establishing a domestic investor base for the development of a robust Canadian covered bond market.”

Fitch says that its rating for the issue is based on RBC’s long-term issuer default rating and a “discontinuity factor’, which measures the likelihood of an interruption of payments on the covered bonds at the time of a possible default by the issuer, on a scale between 0 and 100%, with 0 reflecting perfect continuity and 100% equivalent to a concomitant default of the issuer and its covered bonds.

The RBC issue is assigned a D-Factor of 18.1%, which it says, “reflects the comfort gained from the segregation of the cover assets in the bankruptcy remote special-purpose company acting as guarantor and the satisfactory quality of RBC’s IT systems in managing the cover pool and the associated liabilities.”

Fitch adds that it “gives no credit to the role of the Canadian banking authorities in favour of the bondholders due to the lack of specific regulation.”

IE