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Rating Action:

Moody's assigns provisional ratings to seven classes of Canadian RMBS certificates to be issued by Bicentennial Trust

Global Credit Research - 17 Apr 2017

Toronto, April 17, 2017 -- Moody's Investors Service (Moody's) has today assigned provisional credit ratings to the following classes of certificates to be issued by Bicentennial Trust:

Issuer: Bicentennial Trust, Mortgage Pass-Through Certificates 2017-1

CAD1,862.531M Cl. A Certificate, Assigned (P)Aaa (sf)

CAD39.211M Cl. B Certificate, Assigned (P)Aa2 (sf)

CAD19.605M Cl. C Certificate, Assigned (P)A1 (sf)

CAD14.704M Cl. D Certificate, Assigned (P)A3 (sf)

CAD6.862M Cl. E Certificate, Assigned (P)Baa2 (sf)

CAD6.862M Cl. F Certificate, Assigned (P)Ba1 (sf)

CAD5.882M Cl. G Certificate, Assigned (P)B2 (sf)

This transaction represents the inaugural issuance by Bicentennial Trust, which is sponsored by Bank of Montreal (BMO) (Aa3, negative; a2, Aa2(cr); Prime-1). The certificates are supported by 6,364 prime quality, fixed rate mortgage loans originated by BMO, with a total balance of CAD1,960,559,333 as of the February 28, 2017 cut-off date. All mortgage loans were extended to obligors located in Canada and secured by Canadian residential properties.

RATINGS RATIONALE

The ratings of the notes are based on an analysis of the characteristics of the underlying portfolio, protection provided by credit enhancement and the structural integrity of the transaction.

In analyzing the portfolio, Moody's determined the MILAN Credit Enhancement (CE) of 5% and the portfolio Expected Loss (EL) of 0.45%. The MILAN CE and portfolio EL are key input parameters for Moody's cash flow model.

MILAN CE of 5%: This is consistent with the average MILAN CE assumption for other Canadian RMBS and covered bond transactions and follows Moody's assessment of the loan-by-loan information taking into account the historical performance and the pool composition including (i) the relatively low weighted average current loan-to-value (LTV) ratio of 66.46% (ii) and weighted average credit score of 741.

Portfolio expected loss of 0.45%: This is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the historical collateral performance of the loans to date; as provided by the seller; (ii) the current macroeconomic environment in Canada and (iii) benchmarking with similar RMBS transactions.

Credit Enhancement: Credit enhancement in this transaction is primarily comprised of subordination provided by the junior tranches. Under the sequential pay structure, all scheduled principal payments and prepayments are used to pay down the certificates in order of seniority.

Operational Risk Analysis: BMO's servicing is considered to be a strength, given its credit rating of Aa2(cr)/P-1; a local, branch-based focus on the account relationships that helps detect borrower stress early; and a centralized and specialized loan collection department responsible for delinquency management. We believe that BMO has adequate controls and procedures in place to provide high quality servicing.

Balloon Risk Analysis: BMO (the seller) is required to offer to renew or refinance all mortgage loans at their contractual maturity, providing the borrower is not in default and satisfies BMO's underwriting criteria at such time. Upon renewal or refinance of a mortgage loan, BMO will repurchase that mortgage loan from the trust for an amount equal to the full principal amount of the loan plus accrued interest. If, prior to the end of the contractual term of a performing mortgage loan, the related borrower has not received an offer from BMO consistent with then prevailing posted mortgage rates or entered into an agreement with another party to renew, refinance, or repay the loan, then the servicer of the portfolio will be required to extend all such loans at their existing interest rate. Mortgage loans that are extended by the servicer would continue to be held by the Custodian and collections would continue to flow through to the certificate holders. The combination of BMO's conditional obligation to offer to renew all mortgage loans at the end of their contractual term, and the requirement on the part of the servicer to extend any remaining performing loans at the end of their contractual term, eliminates the risk that a performing borrower may be pushed into default by a demand for repayment at the end of the contractual term. This effectively mitigates the balloon risk associated with the Bicentennial mortgage pool.

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in September 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

This methodology was calibrated based on settings specific for Canada.

Deviations from Published Methodology

Rating committees, where appropriate, consider other factors that we deem relevant to our analysis and adapt the methodology accordingly. In determining the ratings on this transaction, we have deviated from our published methodology in that the MILAN model settings for Canada are primarily intended to be used in evaluating mortgage pools that back covered bond or asset-backed commercial paper programs because these types of transactions adequately address the balloon risk that exists in Canadian residential mortgages. In the case of the Bicentennial Trust transaction, the balloon risk in the pool is structurally mitigated through BMO's conditional obligation to renew and repurchase loans at the end of their contractual term, and the requirement of the servicer to extend all maturing, performing loans that have not otherwise been renewed and repurchased by BMO, or repaid by the borrower. Use of MILAN is therefore appropriate for this transaction.

Please note that on 21 March 2017, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Approach to Assessing Counterparty Risks in Structured Finance. Please refer to Moody's Request for Comment, titled " Moody's Proposes Revisions to Its Approach to Assessing Counterparty Risks in Structured Finance," for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

Factors that would lead to an upgrade or downgrade of the ratings:

Significantly different loss assumptions compared with our expectations at close, due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in downgrade of the rating. Deleveraging of the capital structure or conversely a deterioration in the certificate's available credit enhancement could result in an upgrade or a downgrade of the rating, respectively.

The ratings address the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Moody's issues provisional ratings in advance of the final sale of securities, but these ratings only represent Moody's preliminary credit opinion. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the certificates. A definitive rating may differ from a provisional rating. Moody's will disseminate the assignment of any definitive ratings through its Client Service Desk. Moody's will monitor this transaction on an ongoing basis. For updated monitoring information, please contact monitor.rmbs@moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's either did not receive or take into account one or more third-party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action.

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's credit rating agency in Canada" on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Richard Hunt
VP - Sr Credit Officer/Manager
Structured Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

William Black
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

No Related Data.
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