Fitch Affirms Royal Bank of Canada's Legislative Mortgage Covered Bonds at 'AAA'; Outlook Stable <Origin Href="QuoteRef">RY.TO</Origin>

(The following statement was released by the rating agency)

NEW YORK, June 07 (Fitch) Fitch Ratings has affirmed the the Royal Bank of
Canada's (RBC; 'AA'/'F1+'/Outlook Negative) legislative mortgage covered bonds
at 'AAA' with a Stable Rating Outlook.

KEY RATING DRIVERS

The 'AAA' rating on RBC's legislative mortgage covered bonds is based on the
issuer's 'AA' Issuer Default Rating (IDR) and the unchanged Discontinuity Cap
(D-Cap) of 3 (moderate high risk). Fitch also takes into account the program's
contractual asset percentage (AP) of 93%, which is more conservative than
Fitch's 'AAA' breakeven AP of 94%.

The Stable Outlook for the covered bonds rating is due to the Stable Outlook on
the Canadian sovereign and RBC's support of the program. Since bail-in is not an
explicit provision under the current Canadian framework, in Fitch's view, the
IDR remains a satisfactory indicator of the likelihood that the recourse against
the cover pool would be enforced, and no IDR uplift is applicable.

The 94% 'AAA' breakeven AP, corresponding to a breakeven overcollateralization
(OC) of 6.4% is driven by the cover pool's 'AAA' stress credit loss of 6.7%
followed by the 'AAA' stress asset disposal loss which increased the OC by 1.3%.
The 'AAA' stress cash flow valuation component leads to a decrease in the 'AAA'
breakeven OC by .7%. The 6.7% 'AAA' credit loss represents the impact on the
breakeven OC from the 18.56% weighted average (WA) default rate and the 66.33%
WA average recovery rate for the mortgage cover assets. The breakeven AP
considers whether timely payments are met in a 'AA' scenario and tests for
recoveries given default of at least 91% in an 'AAA' scenario, this is why the
sum of the breakeven OC drivers is higher than RBC's 'AAA' breakeven OC.

Canadian covered bond program documents include a feature called the Selected
Assets Required Amount (SARA) clause, which places some conditions on the sale
of assets in the event of an issuer default. Fitch has considered the impact of
this clause by modelling an issuer default in each of the first six quarters and
before the first benchmark covered bond maturity and determined that the
overcollateralization level is sufficient for all possible sale periods under a
given rating scenario.

The following criteria variations were applied during the analysis of this
program. Fitch utilized the Canadian Residential Mortgage Loan Loss Model
Criteria for the asset analysis of the RBC covered pool. For the cash flow
analysis, Fitch assumed that the defaults on the assets occurred at 25% per year
for four years, the servicing fee was .32%, the negative spread on cash
reinvestments was .10%, and prepayment assumptions of 5% and 30% were used.

RATING SENSITIVITIES

The 'AAA' rating would be vulnerable to downgrade if any of the following
occurs: (i) the IDR is downgraded by four or more notches to 'A-' or below; or
(ii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA'
breakeven level of 94%. The covered bonds' rating could be maintained even if
the D-Cap was reduced to 0 (full discontinuity), subject to a satisfactory level
of AP, given the issuer's current IDR of 'AA' which enables the bonds to reach
'AAA' taking only recoveries into account.

The Fitch breakeven AP for the covered bond rating will be affected, amongst
others, by the profile of the cover assets relative to outstanding covered
bonds, which can change over time, even in the absence of new issuance.
Therefore the breakeven AP to maintain the covered bond rating cannot be assumed
to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a
credit update report, which will be available at www.fitchratings.com.

Contact:

Primary Analyst

Susan Hosterman

Director

+1-212-908-0670

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

Secondary Analyst

Sara De Novellis

Analyst

+39 02 879 087 295

Committee Chairperson

Grant Bailey

Managing Director

+1-212-908-0544

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email:
sandro.scenga@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

Canadian Residential Mortgage Loan Loss Model Criteria (pub. 16 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864357

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May
2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative
Addendum (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Covered Bonds Rating Criteria (pub. 11 Mar 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878761

Covered Bonds Rating Criteria – Mortgage Liquidity and Refinancing Stress
Addendum (pub. 23 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871331

Criteria for Interest Rate Stresses in Structured Finance Transactions and
Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr
_id=1005714

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005714

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det
ail=31

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