Mr. Kevin Chiang of DBRS reports

Debt rated:  Covered bonds, Series CBL10

Rating:  AAA

Trend:  n/a

Rating action:  New rating

Debt rated:  Covered bonds, Series CBL1

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL2

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL3

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL4

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL5 (tranche 1)

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL5 (tranche 2)

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL6

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL7

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL8

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

Debt rated:  Covered bonds, Series CBL9

Rating:  AAA

Trend:  n/a

Rating action:  Confirmed

DBRS Ltd. has assigned a rating of AAA to the Series CBL10 covered bonds issued under Bank of Nova Scotia's (BNS) global registered covered bond program. The registered program was established after the enactment of the covered bond legislation in Canada and the guide issued by the Canada Mortgage and Housing Corp. The Series CBL10 (188 million euros) covered bonds have a coupon rate of 1.637 per cent and a maturity date of Sept. 28, 2035. As all covered bonds issued under the registered program rank pari passu with each other, DBRS has also confirmed the AAA ratings of all other outstanding series.

The AAA ratings are based on three building blocks:

1. BNS's issuer rating of AA;
2. The legal and structuring framework assessment of strong;
3. The cover pool credit assessment of at least A.

The following factors were considered in the analysis for the three building blocks above:

1. The covered bonds are senior unsecured direct deposit obligations of BNS.
2. In addition to a general recourse to BNS's assets, the covered bonds are supported by 7.0-per-cent overcollateralization (OC) in a diversified pool of first-lien conventional Canadian residential mortgages with a maximum loan to value (LTV) of 80 per cent at origination (the cover pool), based on the asset percentage of 93.5 per cent as of Aug. 31, 2015. The cover pool was approximately $22.3-billion as of Aug. 31, 2015. The mortgages may have amortizing and non-amortizing revolving loan parts secured by the same first lien. Only the amortizing loan parts are in the cover pool.
3. The covered bonds benefit from several structural features, such as a reserve fund, when applicable, and rating thresholds for the swap counterparties, servicer and cash manager.
4. Upon a default by BNS, the final maturity date on the covered bonds can be extended for 12 months, which increases the likelihood that the covered bonds can be fully repaid.
5. There is a specific covered bond legislative framework in Canada. In addition, the contractual obligations of the transaction parties are supported by Canada's well-developed commercial and bankruptcy laws, the satisfactory opinions provided by legal counsel to BNS, and a generally creditor-friendly legal environment in Canada.

Despite the above strengths, the rating could face the following challenges:

1. A weakened housing market in Canada could result in higher defaults and/or lower recoveries than the assumptions used in the cover pool credit assessment. This risk is significantly reduced by the home equity available in relation to the portfolio weighted-average LTV of 52 per cent (based on indexed property value) reported by BNS as of Aug. 31, 2015.
2. BNS may need to add mortgages to maintain the cover pool, incurring substitution and potential credit deterioration risk. These risks are mitigated by the continuing monitoring of the cover pool to ensure that the OC available is commensurate with the rating of the covered bonds. Based on the latest review of the cover pool, DBRS considers 5.5-per-cent OC, corresponding to an asset percentage of 94.8 per cent, commensurate with the AAA rating.
3. There is an inherent liquidity gap between the scheduled payments of the covered bonds and the repayment of the underlying mortgage loans over time. This risk is mitigated by the OC, the buildup of a reserve fund if BNS is not rated at least A (low) or R-1 (middle), and the 12-month maturity extension upon default by BNS.

There is no rating report specific to Series CBL10. Please refer to the Series CBL1 rating report dated April 2, 2014, for more details on the registered program.

BNS is one of Canada's largest banks by assets, with assets of $863.1-billion and $48.7-billion in common equity as at July 31, 2015. It is also the servicer of the mortgages in the cover pool.