IFR International - 20.10.2018

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Canadian pack offers euro

and dollar covered supply

„ COVERED BONDS Low-cost opportunity to pique US dollar interest?

A quick-fire trio of Canadian covered bonds
emerged last Monday and Tuesday, with BANK
OF NOVA SCOTIA printing the biggest euro trade in
the format since April - a €1.75bn five-year - as
ROYAL BANK OF CANADA and TORONTO-DOMINION
BANK tapped US dollars.
Canadian issuers have recently focused on
the country’s new bail-in-able senior market.
RBC swiftly opened that sector with deals in US
dollars and Canadian dollars after legislation
was implemented on September 23.
But now the Canadians’ focus has returned
to covered bonds, taking advantage of moves
in cross-currency basis swaps that have
made international issuance look increasingly
attractive.
“The Canadian banks always move with a
pack mentality to a degree, as they trade in a very
similar fashion. So when a trend is working for
any one of them, it works for all of them,” said a
syndicate banker that worked on two of the trades.
This window may be the best opportunity
for Canadian banks to secure low-cost funding,
the banker said, getting out ahead of upcoming
blackout periods and the typical end-of-year
slowdown and New-Year supply splurge.
Royal Bank of Canada launched a 144A/Reg
S US$1.7bn three-year last Monday at a final
spread of 25bp over mid-swaps, inside initial
guidance of the 27bp area, with books closing at
US$1.85bn. HSBC, RBC, TD and UBS were leads.
Bankers said the deal priced around flat to fair
value. RBC’s US$1.75bn March 2021s - its last
US dollar benchmark covered - were trading at
23bp, pre-announcement.
“It’s a very good market reopener,” said a lead
banker.
The deal was RBC’s first US dollar covered
bond since March 2016. It was also its first non-
SEC-registered US dollar covered bond since
2010, returning to the 144A format to avoid
burdensome disclosure requirements.
The deal was announced after the US open
to ensure the issuer could observe how markets
developed on the Monday morning after a
difficult previous week.
BNS and TD hit screens the next day. The
latter’s 144A/Reg S US dollar three-year
matched the pricing of RBC’s deal, starting with
guidance of the 27bp area and landing at 25bp,
but got a larger size, printing US$2bn. The book
closed at US$2.15bn.
The deal paid no new-issue premium,
with bankers citing RBC’s trade as the most
appropriate comparable.

Unlike RBC, TD opened books at the European

open. A lead banker said the group wanted

to ensure European accounts, of which a

“meaningful contingent” participate in US dollar

covereds, had time to have a closer look at the

trade. The issuer also had the advantage of being

able to monitor market conditions on Monday.

Unlike RBC, TD has always issued US dollar

covered bonds in the 144A format, its last such

deal coming in January 2017.

TD, JP Morgan, RBC, UBS and Wells Fargo

were the leads.

BNS CONVINCES BUT EUROS DRIFT

Back in the euro market, BNS, BNP Paribas,

HSBC, Nord/LB, Scotiabank and UBS began

marketing BNS’s five-year euro benchmark

with guidance of the mid-swaps plus 9bp area.

Books quickly passed €1.25bn.

The spread was subsequently fixed at 6bp

with books over €1.9bn, before the size was set

at €1.75bn.

The deal is the biggest single-tranche euro

covered bond since April, and the final book of

€2.2bn is the biggest for a single-tranche euro

covered bond issue since the summer break.

Bankers described the deal as one of the

most convincing euro deals in recent months.

“It’s a good name, they’re paying up a couple

of extra basis points than perhaps people are

used to, it’s a five-year maturity - the sweet

spot - and the market feels a little more stable,”

said a banker at one of the leads. “All those

points add up to become quite valuable.”

The deal offered a final new-issue premium

of 3bp-4bp, inside the 5bp typically offered on

recent euro covereds. It priced broadly flat to a

theoretical new deal in US dollars.

Bankers said another Canadian bank was

monitoring the market and considering a euro

covered bond issue.

The banker that worked on two of the

Canadian deals said the week’s US dollar

issues offered a saving of a couple of basis

points versus the spreads TD and RBC would

have been able to achieve with an equivalent

trade in euros.

He also noted that BNS’s five-year euro

issue was priced at the same level RBC priced a

€1.5bn seven-year covered in August, evincing

the recent drift wider in euro spreads.

These trends could increase international

issuers’ interest in the relatively quiet US dollar

market in late 2018 and early 2019, he said.

Tom Revell