Bank of Nova Scotia launched its debut US dollar bail-in bond on Wednesday, following close on the heels of a similar trade from rival Bank of Montreal the prior week.
Scotia, rated A2/A-/AA-, began marketing the US$1.25bn five-year trade at initial price thoughts of Treasuries plus 105bp, but launched it at 92bp - the exact same spread as where BMO’s (A+/AA-) US$1.75bn five-year note cleared.
Canada’s bail-in regime, which requires all new senior unsecured debt, to be bail-in eligible, came into effect on September 23.
“In terms of relative value, it came right in lock-step with BMO,” said one banker on the trade.
But in terms of structure, the deals are fairly standard.
“Funding seems fairly manageable for the Canadian banks as a whole. The five-year seems to be the sweet spot, and they don’t really need to go out any further,” said the banker.
Final books on the trade were about US$2bn.
CreditSights estimates Canadian banks need to raise at least C$154bn of bail-in debt by November 2021.
“Bail-in requirements were designed by regulators so that TLAC issuance needs would overlap with the banks’ issuance needs for business funding, rather than being additive,” CreditSights noted.
“Regardless of market conditions, in March 2019 and beyond, the banks will need to refinance senior debt continuously, so we don’t expect a major divergence between senior debt maturities and TLAC issuance.”
So far, just three banks - Royal Bank of Canada, BMO and now Scotia - have tapped the US dollar market as market volatility and then earnings blackout kept them on the sidelines.
RBC sold the first ever US dollar bail-in bond from a Canadian bank in October last year.
It raised US$300m from a five-year floating-rate note that priced at three-month Libor plus 66bp, and US$1.5bn from a 3.7% five-year fixed-rate bond that matures in October 2023 and priced at Treasuries plus 78bp.
BMO has tapped the market twice this year.
Its US$1.75bn public deal priced last week, and is still trading around reoffer, according to MarketAxess. But it also sold a private two-year floating rates deal last month that wasn’t widely publicized, according to a banking source close to the matter.
That limited issuance, and lower supply in general from FIG issuers, has helped drive strong interest from the buyside.
Legacy senior debt issued by Canadian banks are trading tighter compared to their bail-in counterparts, but the banker said not to read too much into that.
“That’s a technical issue, as that issuance is going away,” said the banker.
BAML, Goldman Sachs, Morgan Stanley, Scotia Bank and UBS were active book runners on the Scotia trade.
