Toronto, July 12, 2021 -- Moody's Investors Service ("Moody's") has downgraded
The Toronto-Dominion Bank's (TD) long-term Counterparty
Risk Assessment to Aa2(cr) from Aa1(cr), its long-term senior
unsecured rating to Aa2 from Aa1, its junior senior unsecured rating
to A1 from Aa3 and its issuer rating to A1 from Aa3. It has also
upgraded the issuer ratings of TD Bank N.A. and TD Bank
US Holding Company to A1 from A2. The rating actions were driven
by revisions to Moody's Advanced Loss Given Failure (Advanced LGF)
analysis, which is applied to banks operating in jurisdictions with
Operation Resolution Regimes, following the publication of Moody's
updated Banks methodology on 9 July 2021. This methodology is available
at this link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625
Moody's has also affirmed the Aa1 Counterparty Risk Rating,
Aa1/P-1 deposit and short-term ratings and a1 standalone
baseline credit assessments (BCAs) of TD and its affiliates. The
outlook remains stable.
A full list of affected ratings and assessments can be found at the end
of this Press Release.
RATINGS RATIONALE
The rating downgrades reflect Moody's expectation that TD will be
resolved in a unified manner alongside its main US subsidiaries.
The rating agency assesses that issuance of loss absorbing instruments
from its US subsidiaries to TD will likely result in the effective transfer
of losses in a resolution to TD. The inclusion of the Tangible
Banking Assets of the subsidiaries within Moody's Advanced LGF analysis
results in a reduced level of uplift from the bank's BCA,
reflecting the greater volume of losses the bank's liabilities will
be expected to absorb following a failure.
The upgrade of TD Bank N.A's. and TD Bank US Holding Company's
issuer ratings reflects Moody's expectation that the inclusion of
the internal loss absorbing capacity (ILAC) issued by the US intermediate
holding company to its parent in its Advanced LGF analysis will result
in a further one notch of support to the issuer ratings due to the greater
levels of protection afforded to the bank's senior creditors.
Moody's has not reduced its expectation of a high probability of
affiliate support for TD Bank N.A. and TD Bank US Holding
Company from their parent, because it believes that the presence
of ILAC is additive to any extraordinary support the US entities might
receive from their parent prior to the point of failure.
The affirmation of the other ratings and assessments of TD and its affiliates
is supported by TD's leading market shares in a number of personal
and commercial Canadian financial services products, where the bank
typically holds first or second positions with market shares in the high
teens, generating very strong and stable profitability. TD
maintains healthy asset quality characterized by very low non-performing
assets and limited credit concentrations. Moody's expects
these credit strengths to persist over the next 12 to 18 months.
Challenging the bank's credit profile is the business risk associated
with its US expansion and increasing reliance on US earnings, given
its competitive environment and the relatively weaker credit profile of
its US operation compared to the domestic franchise. A further
credit challenge is TD's growing exposure to the increasingly leveraged
Canadian consumer sector, particularly uninsured non-mortgage
debt, particularly in an economic environment which still faces
downside risks associated with high household indebtedness and housing
prices.
However, Moody's expects asset risk to be mitigated by improving
macroeconomic conditions in 2021 and robust overall allowance levels which
should provide ample coverage for expected charge-offs at TD,
as well as for the other large Canadian banks. TD maintains capital
levels that are adequate given its business model, while its strong
liquidity mitigates risks from reliance on confidence-sensitive
wholesale funding.
Moody's believes that the bank's long-term deposits
and senior unsecured bank debt are likely to face extremely low loss given
failure, due to loss absorption provided by more junior obligations
and to the high volume of deposits in its liability structure.
As such, TD's long term deposits and senior unsecured bank
debts are rated three and two notches, respectively, above
the adjusted BCA, reflecting the benefits of subordination and a
moderate likelihood of systematic support. Notwithstanding the
legislated Canadian bank resolution regime, Moody's expects
the government to support a G-SIB if necessary to maintain financial
stability. The junior senior unsecured "bail-in" bank debt
is rated in line with the adjusted BCA reflecting a low loss given failure
as a result of the expected thickness of this tranche of loss absorbing
capital and also obligations subordinated to it. For subordinated
bank debt and preference shares, Moody's advanced LGF analysis
indicates a comparably higher loss-given-failure.
The outlook on the relevant ratings remains stable, reflecting the
stabilization of operating conditions in the system, Moody's
expectation for economic recovery and the strong standalone fundamentals
of TD that will help the bank weather tail risks over the next 12 to 18
months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given TD's very high ratings, rating upgrades are unlikely.
However a reduction of exposure to Canadian consumer credit card and auto
finance debt would be positive for the BCA and the ratings.
The ratings could be downgraded if the bank significantly increased reliance
upon capital markets earnings, or income contribution from US operations,
where it does not enjoy the same franchise strength as in Canada,
increased exposure to unsecured Canadian consumer debt or experienced
risk management and governance failures that result in increased earnings
volatility. The ratings could also be downgraded due to a reduction
in Moody's assumptions regarding expected issuance of junior senior debt,
resulting in lower protection for senior creditors.
LIST OF AFFECTED RATINGS
Downgrades:
..Issuer: Toronto Dominion Bank (London)
.... LT Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
....Junior Senior Unsecured Deposit Note/CD
Program (Foreign Currency), Downgraded to (P)A1 from (P)Aa3
....Senior Unsecured MTN (Foreign Currency),
Downgraded to (P)Aa2 from (P)Aa1
..Issuer: Toronto Dominion Global Finance
....Backed Senior Unsecured MTN (Foreign Currency),
Downgraded to (P)Aa2 from (P)Aa1
..Issuer: Toronto-Dominion Bank (The)
.... LT Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
.... Issuer Rating, Downgraded to A1
from Aa3, Stable
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Downgraded to Aa2 from Aa1, Stable
....Junior Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Downgraded to A1 from Aa3, Stable
....Junior Senior Unsecured Regular Bond/Debenture
(Local Currency), Downgraded to A1 from Aa3, Stable
....Senior Unsecured MTN (Local Currency),
Downgraded to (P)Aa2 from (P)Aa1
....Senior Unsecured MTN (Foreign Currency),
Downgraded to (P)Aa2 from (P)Aa1
....Junior Senior Unsecured MTN (Foreign Currency),
Downgraded to (P)A1 from (P)Aa3
....Junior Senior Unsecured MTN (Local Currency),
Downgraded to (P)A1 from (P)Aa3
....Senior Unsecured Shelf (Foreign Currency),
Downgraded to (P)Aa2 from (P)Aa1
....Junior Senior Unsecured Shelf (Foreign
Currency), Downgraded to (P)A1 from (P)Aa3
..Issuer: Toronto-Dominion Bank, New
York Branch
.... LT Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
Upgrades:
..Issuer: TD Bank US Holding Company
.... Issuer Rating, Upgraded to A1 from
A2, Stable
..Issuer: TD Bank, N.A.
.... Issuer Rating, Upgraded to A1 from
A2, Stable
Affirmations:
..Issuer: TD Capital Trust IV
....Pref. Stock Preferred Stock (Local
Currency), Affirmed Baa1 (hyb)
..Issuer: Toronto Dominion Bank (London)
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... ST Counterparty Risk Rating (Foreign
Currency), Affirmed P-1
.... LT Counterparty Risk Rating (Foreign
Currency), Affirmed Aa1
.... ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
.... LT Counterparty Risk Rating (Local Currency),
Affirmed Aa1
.... LT Deposit Note/CD Program (Foreign Currency),
Affirmed (P)Aa1
.... ST Deposit Note/CD Program (Foreign Currency),
Affirmed (P)P-1
.... Subordinate MTN (Foreign Currency),
Affirmed (P)A2
.... Other Short Term (Foreign Currency),
Affirmed (P)P-1
.... Commercial Paper (Foreign Currency),
Affirmed P-1
..Issuer: Toronto Dominion Global Finance
.... Backed Other Short Term (Foreign Currency),
Affirmed (P)P-1
..Issuer: Toronto Dominion Holdings (U.S.A.),
Inc.
.... BACKED Commercial Paper (Local Currency),
Affirmed P-1
..Issuer: Toronto-Dominion Bank (The)
.... Adjusted Baseline Credit Assessment,
Affirmed a1
.... Baseline Credit Assessment, Affirmed
a1
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... ST Counterparty Risk Rating (Foreign
Currency), Affirmed P-1
.... LT Counterparty Risk Rating (Foreign
Currency), Affirmed Aa1
.... LT Counterparty Risk Rating (Local Currency),
Affirmed Aa1
.... ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
.... LT Deposit Rating (Local Currency),
Affirmed Aa1, Stable
.... LT Deposit Rating (Foreign Currency),
Affirmed Aa1, Stable
.... ST Deposit Rating (Local Currency),
Affirmed P-1
.... ST Deposit Rating (Foreign Currency),
Affirmed P-1
....Junior Subordinated Regular Bond/Debenture
(Local Currency), Affirmed A2 (hyb)
....Junior Subordinated Regular Bond/Debenture
(Foreign Currency), Affirmed A2 (hyb)
....Subordinated MTN (Local Currency),
Affirmed (P)A2
....Subordinated MTN (Foreign Currency),
Affirmed (P)A2
....Junior Subordinated MTN (Local Currency),
Affirmed (P)A2
....Other Short Term (Local Currency),
Affirmed (P)P-1
....Other Short Term (Foreign Currency),
Affirmed (P)P-1
....Subordinate Shelf (Foreign Currency),
Affirmed (P)A2
....Pref. shelf Non-cumulative
(Foreign Currency), Affirmed (P)Baa1
....Pref. Stock Non-cumulative
(Foreign Currency), Affirmed Baa1 (hyb)
....Pref. Stock Non-cumulative
(Local Currency), Affirmed Baa1 (hyb)
....Subordinate Regular Bond/Debenture (Local
Currency), Affirmed A2
....LT Deposit Note/CD Program (Foreign Currency),
Affirmed (P)Aa1
....LT Deposit Note/CD Program (Local Currency),
Affirmed Aa1, Stable
....LT Deposit Note/CD Program (Foreign Currency),
Affirmed Aa1, Stable
....Commercial Paper (Foreign Currency),
Affirmed P-1
..Issuer: Toronto-Dominion Bank, New
York Branch
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
.... LT Counterparty Risk Rating (Local Currency),
Affirmed Aa1
.... ST Counterparty Risk Rating (Foreign
Currency), Affirmed P-1
.... LT Counterparty Risk Rating (Foreign
Currency), Affirmed Aa1
....LT Deposit Rating (Local Currency),
Affirmed Aa1, Stable
Outlook Actions:
..Issuer: Toronto Dominion Bank (London)
....Outlook, Remains Stable
..Issuer: Toronto-Dominion Bank (The)
....Outlook, Remains Stable
..Issuer: Toronto-Dominion Bank, New
York Branch
....Outlook, Remains Stable
..Issuer: TD Bank US Holding Company
....Outlook, Remains Stable
..Issuer: TD Bank, N.A.
....Outlook, Remains Stable
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Roberto Colangelo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Andrea Usai
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
