The Royal Bank of Canada (RBC) officially closed its $2.5 billion U.S. Securities and Exchange Commission (SEC)-registered covered bond issue this morning, sources familiar with the deal said.
SEC registration meant that the $2.5 billion covered bond deal, which was rated triple-A by Standard & Poor's, Moody's Investors Service and Fitch Ratings, was able to tap a broader range of investors and also be included on bond indices.
According to a Bloomberg report, the five-year deal priced to yield 1.20%, versus the five-year Treasury yield of 0.695%. The deal was also reportedly well over-subscribed.
The SEC-registered covered bonds are issued under RBC's existing Global Covered Bond Program and uses the same cover pool that supports the covered bonds previously issued by the bank, according to a Morrison & Foerster (MoFo) report on the deal. The law firm said it was instrumental in putting the deal together.
Covered bonds offerings in the U.S. have typically been offered under Rule 144A. Given the private placement nature of the market, the communications for these deals must be carefully controlled. The firm also said that resales are limited by transfer restrictions on the bonds. The bonds are restricted securities, which limits their participation in the secondary market.
"Many buyers have a limited capacity to purchase restricted securities [and these securities] are not included in the major bond indices like the Barclays Aggregate Bond Index, which limits the secondary market," the MoFo report said.