RBC Prices USD $1.5 Billion Covered Bond
Canada's second USD CB while U.S. banks remain stalled
By:
By Covered Bond Investor™ Staff
04/07/2010
Royal Bank of Canada (RBC) priced its first U.S. dollar-denominated covered bond Wednesday (April 7).
The $1.5 billion issue, with a five-year maturity, sold at 45.85 basis points over comparable Treasury yields, according to Reuters.
This is the second USD covered bond issue from a Canadian bank — both in 2010. The first, a three-year, $2 billion covered bond from Canadian Imperial Bank of Commerce (CIBC) (Jan. 27), was priced at 66 basis points over the 1.375% January 2013 U.S. Treasury benchmark.
Like CIBC's issue, RBC's covered bond was offered to U.S. institutional investors in the private placement market as permitted under SEC Rule 144a.
Meanwhile, there is still no new covered bond from a U.S. bank on the horizon. Although Bank of America and now-defunct Washington Mutual (WaMu) successfully sold large covered bond issues in 2006 and 2007 (WaMu's program is now sponsored by JP Morgan), momentum ground to a halt with the global economic crisis.
Proponents of U.S. covered bonds hope that covered bond legislation recently introduced in Congress by Rep. Scott Garrett (R-NJ) could help encourage their use as an additional funding tool for real estate mortgages and other asset classes here. However, at this point the bill is still in committee, with prospects for passage unclear.
Covered bonds are dual-recourse debt obligations that give an investor recourse for payment both (1) directly against the issuer and (2) to a pool of assets — the cover pool — that secures or "covers" the bond if the issuer becomes insolvent. Still little known in the U.S., they are widely used in Europe for real estate and public sector financing.
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