The first ever SEC-registered covered bond, sold by RBC last week, lived up to expectations of reaching a broader investor base and brought spread savings versus 144A issuance, said syndicate bankers, who nevertheless expect follow-up activity to take time to emerge.

They attributed a pricing benefit of 5bp-10bp to the SEC-registration, and also noted that the issuer had achieved attractive pricing compared with senior unsecured levels – 15bp-25bp tighter – although one said that RBC had been more sensitive to this pricing relationship when it was triple-A rated by Moody’s.

More than 180 investors are said to have participated in RBC’s covered bond last Wednesday (12 September), with orders reaching some $5.25bn (Eu4.05bn). Bookrunners Morgan Stanley, RBC Capital Markets and RBS priced the deal at 35bp over mid-swaps, and the deal is said to be trading at around 28bp-30bp over. TD Securities was joint lead.

A syndicate official away from the deal noted that the order book included accounts that would not have got involved had it not been for the SEC-registration.

“The deal went phenomenally well,” she said, “and was right in line with expectations and where we had pinpointed the opportunities for them.”

The order book showed that the SEC-registered transaction was able to achieve incremental distribution, she added, with its eligibility for TRACE and major indices qualifying it as an alternative investment for index players.

Another banker echoed this sentiment, saying that the number of investors in the order book was multiples of the average in previous covered bonds, and that the size of the deal, at $2.5bn, showed that already active investors were able to participate in larger size as well as new accounts.

“It looks like the investor base was definitely broader, which is good,” he said. “It would be interesting to know what the difference was between the normal guys playing up in size and completely new accounts.”

The success of RBC’s deal was also due to other factors away from the issuance format, however, according to another syndicate banker, who said that the “fantastic shape” the market is in and pent-up demand for Canadian supply also drove demand.

After contributing strongly to US dollar supply last year and early this year, Canadian banks had not tapped the US market since the first quarter.

“With Canadian banks, aside from RBC, using only CMHC insured mortgages in their covered bond pools,” said DBRS in research last week, “a large part of the stagnation in market activity can be attributed to issuers sitting on the sidelines until the new legislation, which currently prohibits CMHC insured mortgages from being included within the cover asset pool, has been finalised.”

A covered bond banker put the spread saving versus a covered bond in the private placement format at around 5bp, and said that this was a decent amount on a $2.5bn deal.

However, saving on the spread versus a 144A issue is not necessarily the most important benefit of SEC-registered issuance, at least for Canadian banks, he said, with certainty of execution, in particular with respect of deal size, “the win”.

European issuers could benefit more in terms of pricing from selling SEC-registered covered bonds, he said, given that they price wider than Canadian banks’ issues.

He downplayed the chances of other Canadian issuers following in RBC’s footsteps, at least in the near future, given demanding administrative, compliance, and disclosure requirements associated with SEC-registration, and said that RBC had been very motivated to go down the registered issuance route.

However, Canadian issuers are understood be weighing the merits of SEC-registration and issuance in 3(a)(2) format, an exemption from full SEC-registration that is said to also entail index eligibility and therefore greater liquidity.

A syndicate banker said full SEC registration and the 3(a)(2) format carry fairly equal benefits from a market perspective, and that most investors are indifferent. Unlike for SEC-registration, the 3(a)(2) format requires issuers to have a US branch or agency, with capital implications for such an entity.

In the meantime, US dollar covered bond issuance could come in the form of opportunistic deals from the likes of Australia, Switzerland, and the Nordic area, said a syndicate banker, with issuers generally having achieved what they set out to do in the US market this year.