Scotiabank May Sell Canada Style Loss-Absorbing Notes in U.S.
(Bloomberg) -- Bank of Nova Scotia is set to become Canada’s first bank to sell a junior bond known as limited recourse capital notes in a currency other than loonies.
Toronto-based Scotiabank is reaching out to U.S. dollar-based investors Monday before deciding to go ahead with the deal, according to people familiar with the matter, who asked not to be named discussing a private transaction. In June, the bank sold LRCNs in the Canadian dollar corporate bond market.
Canadian banks have sold C$15.8 billion ($12.5 billion) of LRCNs since July 2020 when Office of the Superintendent of Financial Institutions deemed the securities eligible as Additional Tier 1 loss-absorbing buffers, according to data compiled by Bloomberg. Such transactions, which so far have been denominated in Canadian dollars, allow issuers tax deductions on interest payments -- thus reducing their all-in borrowing costs.
Scotiabank’s C$1.25 billion of 3.7% notes due in 2081 with a call option in June 2026 are quoted at an equivalent spread of around 252 basis points over U.S Treasuries, according to Bloomberg data. The notes are rated by S&P Global Ratings and Moody’s Investor Service at their lowest investment grades.
A press officer for Scotiabank didn’t provide immediate comment on the potential deal.
©2021 Bloomberg L.P.