Toronto-Dominion Bank sold its first euro covered bond yesterday (Monday), a Eu1.75bn (C$2.54bn, US$2.37bn) five year inaugural legislative issue that an official at the bank said took advantage of a “perfect market opportunity” after lengthy preparations and would not be a one-off.

Leads BNP Paribas, Credit Suisse, JP Morgan and TD priced the new issue at 7bp over mid-swaps on the back of more than Eu2.5bn of orders, after having gone out with initial price thoughts of the 10bp over mid-swaps area and then guidance of the 8bp area.

A new issue had been expected after TD’s new legislative programme was registered on 25 June. It was the last of the Canadian banks that issued covered bonds under the country’s previous, contractual-based regime to have a legislative programme registered, and the seventh overall.

Christina Wang, head of funding management, treasury and balance sheet management, said that TD did not start working on its programme until last summer.

“CIBC and RBC were already out issuing in July and we honestly didn’t really start until then,” she said. “As DBRS reported, we are a big CMHC MBS user and we didn’t have a lot of uninsured mortgage assets to begin with, so that delayed our start time.”

The issuer then had to undergo the registration process with Canada Mortgage & Housing Corporation (CMHC).

“The goal of CMHC’s programme is really well intended,” said Wang. “However, this process is a little bit more involved than any issuer would hope for, so it did take a long time.”

TD’s programme was finally registered three weeks ago and the issuer targeted launch before the summer took hold.

“We received the CMHC registration by the end of June and then there was some tidying up of the documentation to do,” said Wang. “We started to hear people saying, well the summer is here so if you come to the market this is probably the window.

“We were nevertheless able to allow investors some time to review our documents and not have to rush the deal, and this was well received by investors based on the feedback we had. And I think it worked out for us because we saw a very quick bookbuilding process and very strong demand.”

The issuer announced the mandate last Wednesday and eschewed a roadshow.

“We have done a number of investor meetings in the past couple of years,” said Wang, “previously under the old covered bond programme where we mostly issued in the US, but more recently, as we were looking into European issuance, we participated last year in the ECBC conference and a couple of other events that afforded us the opportunity to meet investors.

“We have always been anticipating a deal like this to occur when we had the programme registered.”

Derry Hubbard, head of FIG syndicate at BNP Paribas, said that investors appreciated having a few days after the mandate was announced to prepare for a deal, and responded very positively to the mandate.

“There was very clear traction from the outset,” he said. “You could say that is not surprising, but things were not entirely risk-free given developments surrounding Russia and Ukraine. If there was a reason for investor caution, that was certainly one, but the safe haven sentiment outweighed.”

However, investor interest was high given that TD is a rare issuer in euros, said Hubbard, with the deal also benefitting from a lack of visibility around the pipeline for European bank covered bond and agency supply.

“There is no doubt that the bid for what is essentially a stable swap proxy with some spread on it is high,” he added. “Everyone worked to finalise lines for TD covereds, and those who did the work wanted the bonds they ordered.”

TD’s July 2019s covered bonds were being bid at 5.5bp this (Tuesday) morning, according to Hubbard.

The deal is TD’s first in euros, with the Canadian bank having focused on the US market in the past.

“Covered bonds is a traditional European product,” said Wang, ”but in the past the pricing never seemed to work. If we look at the depth of the euro market and if we want to run a good covered bond programme, this is not a market that we can ignore.

“And it just so happened that the pricing worked in favour of euros at this point, so it was a perfect market opportunity for us to launch our inaugural deal in the euro market.”

TD’s transaction is the largest of any Canadian issuer since RBC sold a Eu2bn covered bond in July 2013.

“In our mind we were thinking of a benchmark trade, of perhaps Eu1bn or Eu1.25bn,” said Wang. “We did discuss the option of upsizing the deal, but it really was driven by the very strong demand and really very high quality book.

“As I mentioned, we were a little concerned about the timing, but it all turned out quite well, so we are very pleased with the overall reception.”

A syndicate banker noted that TD’s deal was considerably bigger than and matched the pricing of a Eu1bn five year for Royal Bank of Canada in June, the most recent Canadian issue before TD’s, despite the iTraxx senior financials index being some 14bp wider.

“It’s very strong confirmation of the strength of TD’s name,” he said.

Wang said that several factors played into the strong demand.

“With TD’s strong credit rating and the bond additionally being backed by a prime residential mortgage pool, we believe that we are providing a really good investment to investors,” said Wang. “The ECB eligibility helped us in the same way as it helped the other Canadian banks’ issuance.

“And I think there is a little more clarity on the LCR treatment that may also have helped us. We cannot confirm that for sure, but the level of bank participation really seems to indicate to me that a lot of people have taken that positive development to heart.”

Wang said that TD expects to issue in a programmatic manner henceforth.

“It is important for us to do that because it’s sort of a dialogue between the issuer and the investor,” she said. “Coming to euros is not a one-time thing. We will come back to the euro market as long as the investor base and the market pricing works – of course, a trade is ultimately driven by our internal funding needs.

“We will definitely look at the euro market equally as other markets. That message is a key takeaway for investors.”

Nearly 100 accounts participated in TD’s transaction. Germany and Austria took 32%, the UK and Ireland 25%, Switzerland 9%, the Benelux 8%, Nordics 5%, Asia 5%, France 5%, eastern Europe 3%, US offshore 3%, and supranationals 5%.

Asset-liability management accounts were allocated 57%, central banks and official institutions 24%, asset managers 12%, insurance companies 4%, and corporates 3%. [Statistics added]