Royal Bank of Canada could launch the first fully SEC registered covered bond issue after having received a “no action” letter from the US regulator yesterday (Friday), with any such deal potentially heralding a breakthrough for the asset class in the US.

US dollar issuance to date has been via 144A private placements, but this format has limited the investor base for the products.

Should RBC follow up its SEC notification with a full registered issue, it would face no such selling restrictions and, unlike 144A issuance, would be eligible for the main US indices.

“This will bring covered bonds into the mainstream of the capital markets in America,” said Jerry Marlatt, senior of counsel at Morrison & Foerster, which acted for RBC.

In its letter to the SEC, it said: “The Bank proposes to file the Registration Statement with the Commission for the offer and sale of the Covered Bonds under the Bank’s Global Covered Bond Programme… The Bank believes that covered bonds would provide an attractive investment alternative in the United States, and therefore believes that conducting a covered bond on a registered basis would greatly facilitate the introduction of the product in the United States.”

RBC already has an SEC registered senior debt programme, making it less onerous for the bank to meet the requirements for its covered bond programme.

The Canadian government is introducing covered bond legislation that, among other measures, will prohibit issuance backed by cover pools comprising insured mortgages, which will affect all issuers except for RBC and could affect their ability to issue. Unlike its peers, RBC has not used mortgages insured by Canada Mortgage & Housing Corporation in its cover pool but uninsured prime residential mortgages, and it could therefore find issuance easier.

The relevant documents can be found here:

http://sec.gov/divisions/corpfin/cf-noaction/2012/rbc051812-f3.htm

Read The Covered Bond Report on Monday for more.