DBRS Morningstar Assigns NVCC Subordinated Debt Rating of BB (high) with a Stable Trend to Coast Capital’s Subordinated Notes

DBRS Limited (DBRS Morningstar) assigned a NVCC Subordinated Debt Rating of BB (high) with a Stable trend to Coast Capital Savings Federal Credit Union’s (Coast Capital or the Credit Union) Subordinated Notes (the Notes). The $100 million Notes issuance has a maturity date of May 2, 2033, and will be direct unsecured subordinated indebtedness of the Credit Union ranking equally and rateably with all other subordinated indebtedness of Coast Capital.

DBRS Morningstar assigned the NVCC Subordinated Debt a rating equal to that of the Coast Capital’s Intrinsic Assessment of BBB (high) less three rating notches as the NVCC Subordinated Debt has only an Office of the Superintendent of Financial Institutions (OSFI)-compliant NVCC trigger, which is consistent with the OSFI requirements for NVCC instruments, and no additional triggers. The notching differentials are equivalent to those adopted for other OSFI-regulated Canadian banks.

RATING DRIVERS
The rating of the Notes will move in tandem with Coast Capital's Long-Term Issuer Rating. Over the longer term, ratings would be upgraded if the Credit Union is able to further strengthen its franchise through a sustained increase in member share of wallet and/or a sustained improvement in earnings, including a higher proportion of non-interest income.

Alternatively, the ratings would be downgraded if there is a sustained deterioration in asset quality, especially from deficiencies in risk management. In addition, the ratings would be downgraded due to an inability to control costs or a sustained reduction in internal capital generation.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Social (S) Factors
DBRS Morningstar finds that the Social Impact of the Products and Services ESG subfactor was relevant to the credit rating but does not affect the assigned rating or trend. As a credit union, Coast Capital operates a membership-based community banking model where the social aspect of its activities strengthens its franchise. As a result, this factor is incorporated into the Credit Union’s Franchise Strength grid grades.

There were no Environmental or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (https://www.dbrsmorningstar.com/research/398692; June 23, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (https://www.dbrsmorningstar.com/research/396929; May 17, 2022) in its consideration of ESG factors.
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577