CIBC Prices Its Second U.S. Dollar Covered Bond - $1.25 Billion

Canadian Imperial Bank of Commerce (CIBC) has priced its second-ever U.S. dollar (USD) denominated covered bond (June 25).

The spread for the five-year, US $1.25 billion issue is 73.2 basis points over comparable U.S. Treasuries.

Including CIBC's latest, USD covered bond issuance from Canadian Banks has now reached a total of US $6.75 billion — all in this year.

On January 27, CIBC became the first Canadian bank in history to launch a USD covered bond — and the first from any issuer since 2007 — when it priced a three-year, US $2 billion issue at 66 basis points over comparable U.S. Treasuries (equivalent to 30 basis points over mid-swaps).

Two other Canadian banks followed suit.  On April 7, Royal Bank of Canada priced a five-year, US $1.5 billion issue at 48.85 basis points over Treasuries.  Earlier this month (June 6), a five-year, US $2 billion covered bond from Bank of Montreal (BMO) was priced at 72.3 basis points over Treasuries.

All of these Canadian USD covered bonds have been aimed primarily at big U.S. institutional investors in the private placement market under SEC Rule 144A, which provides an exemption to requirements that would otherwise apply.

Such covered bond issues "highlight two developments that are impacting Canadian corporate finance," according to Martin Fingerhut, a partner in the Canadian law firm Blake, Cassels & Graydon LLP and chair of its structured finance group. 

In a discussion with Covered Bond Investor™ following the earlier CIBC (and RBC) issuance, Fingerhut pointed to "(i) the growing attraction of U.S. and other non-Canadian investors to well-structured and strongly-performing Canadian financial assets and (ii) the virtual elimination of Canadian withholding tax on cross-border interest payments."

In Fingerhut's view, "[t]hese subtle changes have fuelled significant growth in Canadian covered bond and securitization transactions that have accessed U.S. and European investors and have seen billions of dollars of Canadian consumer and corporate assets funded outside Canada."

As with CIBC's previous USD issue, the cover pool for the bonds consists of Canadian residential mortgage loans insured by the Canada Mortgage and Housing Corporation (CMHC).