DBRS Morningstar put its AAA rating of Laurentian Bank’s covered bonds under review with negative implications yesterday (Thursday), in line with a similar rating action last month on the issuer itself, which followed the departure of its CEO and chair of the board after a September service outage.

The rating agency on 3 November placed the A (low) long term issuer rating of Laurentian Bank of Canada (LBC) under review with negative implications.

“The Under Review with Negative Implications designation reflects DBRS Morningstar’s view that these adverse series of events in aggregate have weakened LBC’s franchise strength and future growth prospects, pressuring the credit ratings. LBC’s personal banking business, which has already had weaker earnings than its peers, has been under pressure with customer attrition, shrinking loans, and stagnant deposits in recent years.”

The bank had concluded a strategic review of options in mid-September that decided against a sale.

DBRS Morningstar said yesterday that the AAA rating of Laurentian’s two outstanding covered bonds – both Canadian dollar-denominated, totalling C$2bn (€1.35bn) – have been placed under review with negative implications.

According to the rating agency, the covered bonds will be downgraded if the A (low) long term senior debt rating of Laurentian (its covered bond attachment point, CBAP) is cut by two notches or more, while the AAA rating can withstand a downgrade of one notch if covered bond programme overcollateralisation is increased to a level where the cover pool credit assessment (CPCA) is triple-A.