Moody’s Investors Service has assigned an A1 rating to Toronto-Dominion Bank’s recently announced $1 billion issue of subordinated debt.

The A1 rating incorporates the relative position in claims priority within the bank’s capital structure. TD is rated Aa3 for deposits and its bank financial strength rating is B. The rating outlook is stable.

Moody’s ratings on TD (Aa3 for deposits) are based on the bank’s large retail reach in Canada where the bank holds the #1 or #2 market share positions in many product markets. In the late 1990s, TD’s business mix was equally weighted between its retail business and its wholesale business. Since then, TD shifted its business mix towards markets with stronger risk-return characteristics – Canadian personal and commercial banking. The implication of this shift is a much improved credit profile because a greater proportion of its capital is allocated to businesses with better credit fundamentals. This has led to significantly improved asset quality and profitability.

Some of the benefits of this shift have been offset by the bank’s uniquestrategy for expansion to the U.S. In 2005, TD has moved aggressively into the U.S. retail financial services industry with the acquisition of 56% of the Banknorth Group, Inc., the pending acquisition of up to 39.9%of a merged TD Waterhouse USA / Ameritrade entity, and the pendingacquisition of Hudson United Bancorp by TD Banknorth Inc. As a result of these transactions, TD has allocated substantial capital to arrangements with untested governance structures. Additionally, the bank has increased its financial leverage to complete these transactions.

Regarding the future direction of TD’s ratings, Moody’s said that upward rating pressure would likely follow a continued strengthening of TD’s performance on Moody’s key profitability and asset quality ratios, and the avoidance of any material strategic or operational setbacks in the U.S. Negative rating pressure could emerge if the intrinsic financial strength of TD’s U.S. subsidiary, TD Banknorth, Inc., were to weaken.