Bank of Canada announces new Term Purchase and Resale Agreement Facility for Private Sector Instruments | Practical Law

Bank of Canada announces new Term Purchase and Resale Agreement Facility for Private Sector Instruments | Practical Law

Bank of Canada announces new Term Purchase and Resale Agreement Facility for Private Sector Instruments

Bank of Canada announces new Term Purchase and Resale Agreement Facility for Private Sector Instruments

by Stephen Redican, Borden Ladner Gervais LLP
Published on 05 Mar 2009 • Canada
Speedread

Speedread

The Bank of Canada has proposed a new facility to help provide liquidity to the market for private sector securities. The new facility will replace the existing facility and will, for the first time, include eligible corporate bonds.
As part of its ongoing provision of liquidity to support the functioning of the market for private sector securities, on 23 February 2009 the Bank of Canada announced a proposal for a new Term Purchase and Resale Agreement Facility for Private Sector Instruments (PRA). The proposed new facility will, for the first time, include eligible corporate bonds and will replace the existing Term Purchase and Resale Agreement Facility for Private Sector Money Market Instruments.
The Bank will seek the views of market participants on this proposal through consultations to be conducted the week after the announcement. Final details, including the schedule of operations to be conducted up to June 2009, will be announced following the completion of this consultation process.
It is proposed that the eligible securities for transactions under the new facility will consist of Canadian-dollar denominated:
  • Bankers' acceptances and promissory notes, including those of foreign issuers, (maximum term, 364 days) with a minimum issuer credit rating of:
    • R1 (low) by the Dominion Bond Rating Service (DBRS);
    • A-1 (mid) by Standard and Poor's (S&P); or
    • P1 by Moody's Investors Service (Moody's).
  • Commercial paper, including that of foreign issuers, (maximum term, 364 days) with a minimum issuer credit rating of:
    • R1 (low) by DBRS;
    • A-1 (mid) by S&P; or
    • P1 by Moody's.
  • Asset-backed commercial paper of eligible programs, with a minimum of two credit ratings that are at least one of:
    • R1 (high) by DBRS;
    • A-1 (high) by S&P;
    • P1 by Moody's; or
    • F1+ by Fitch Ratings.
  • Corporate bonds with a minimum long-term issuer credit rating of:
    • A (low) by DBRS;
    • A- by S&P; or
    • A3 by Moody's.
The Bank of Canada has indicated that securities issued or guaranteed by affiliates are not eligible, with the exception of bank-sponsored ABCP that has met the Bank of Canada's criteria. Margins will be the same as those used in existing term PRA operations. Depending on the term to maturity of the operation, participants may have the right to substitute the securities underlying the transaction on specified dates.
The Bank of Canada has also stated that consideration will be given to extending eligible securities for all Bank of Canada term PRAs to include corporate bonds with a minimum rating of BBB and term asset-backed securities (ABS) in due course.
In announcing this proposed new facility, the Bank of Canada has stated that it will continue to provide exceptional liquidity to the Canadian financial system as long as conditions warrant.