RBC sold the first fully-SEC registered covered bond yesterday (Wednesday), a $2.5bn five year benchmark that a banker on the deal said attracted interest from a large and diversified group of investors, while a treasury official at the issuer spoke of the reasons for seeking registration.

Lead managers Morgan Stanley, RBC Capital Markets and RBS, with TD Securities as joint lead, priced the transaction at 35bp over mid-swaps.

“We consider the offering to be successful, with a large and diversified group of investors showing interest in the bond,” said Ben Colice, head of covered bonds origination, RBC Capital Markets.

The deal is understood to have initially been marketed at the 40bp over area, and to have attracted more than $5bn of orders.

A syndicate banker familiar with the deal said the public format of the deal brought new accounts and that greater liquidity – “the crux of the issue” – will support spreads, but that the level was not as tight as that on covered bonds backed by mortgages insured by Canada Mortgage & Housing Corp (CMHC).

A syndicate banker away from the leads noted several positive aspects of the transaction: that the pricing was tightened, the order book one of the largest for a US dollar covered bond, and that the deal is much larger than has been the norm for RBC in either covered bonds or senior unsecured in the past.

“Given that, it is fairly safe to assume that the deal brought a greater breadth of investors,” he said, “plus increased demand from prior 144A buyers, and also saw pricing benefit.”

He said it was difficult to quantify the spread savings relative to a deal in the 144A format, but that he would put it at around 5bp.  [Article updated with outside comment.]

Canadian banks have been an important driver of US targeted benchmark covered bond supply in recent years, but the introduction of Canadian covered bond legislation in April prohibiting issuance backed by mortgages insured by CMHC has kept Canadian issuers on the sidelines. Royal Bank of Canada is the only issuer whose covered bonds are not backed by CMHC-insured mortgages

The last Canadian benchmark was a $2.75bn dual tranche issue for Bank of Nova Scotia that included a $1.5bn five year tranche that came at 45bp over mid-swaps.

Yesterday’s deal is RBC’s first US dollar covered bond benchmark since it sold a $1.5bn five year transaction in April 2010. That was in the private placement 144A format that all US targeted dollar covered bond issuance has taken before RBC broke the mould with a fully-SEC registered deal.

Speaking at a European Covered Bond Council plenary in Munich yesterday, David Power, vice president, corporate treasury at RBC, said that while different dynamics drove RBC’s decision to pursue SEC registration, the “simple answer” was that it was done because of US investors and the many requirements they have.

RBS’s Colice said that SEC-registered covered bonds are a development that will be viewed positively by the fixed income market.

“Many investors have a strong preference to purchase registered securities,” he said. “SEC registered covered bonds are eligible to be included in broad bond indices, qualifying them for more internal investment policies.

“Registered bonds will also be eligible for the TRACE system, which brings more transparency on pricing and better trading liquidity.”

RBC’s decision to pursue SEC-registration for its US targeted covered bond issuance was a “natural extension” of its desire to align itself with the US market, said Power, noting that the issuer already had an SEC-registered senior debt shelf.

However, he cautioned against underestimating the amount of work involved in seeking SEC-registration and said it was not a decision to be taken lightly.