Canada’s Equitable Bank is closing in on a covered bond debut, which could be a €250m deal as early as May, subject to regulatory approval and market conditions, an Equitable official told The CBR. Regular European issuance is planned, as it seeks to cost-effectively diversify its funding.

Equitable announced in August 2019 that it had mandated Barclays and TD Securities to arrange a legislative covered bond programme and is well on its way to an inaugural deal.

Alex Prokoudine, vice president, capital markets, Equitable Bank, said that the covered bond programme will play an important role in furthering the bank’s growth and diversification strategy.

“Covered bonds will be a key pillar of our funding stack going forward,” he told The Covered Bond Report, “and we look forward to launching the first transaction later this year.”

The first issue off the legislative programme is expected to be a €250m (C$385m, US$302m) soft bullet, backed by a diversified portfolio of first lien Canadian residential mortgage loans.

“As arrangers, Barclays and TD Securities bring a wealth of knowledge and experience to the table,” said Prokoudine, “ensuring the programme not only meets our requirements as the issuer, but will also be attractive to investors.”

The programme will carry two ratings.

“We plan to be a regular issuer in the European market to make it worthwhile for investors to follow the programme,” added Prokoudine. “We plan to scale steadily towards our regulatory issuance limit, which is currently set at 5.5% of total assets.

“We have been actively discussing these limits with the regulators and would be eager to take advantage if the limits were increased.”

Market participants had previously speculated that moves in the direction of looser covered bond issuance limits, such as revised calculations announced by the Office of the Superintendent of Financial Institutions (OSFI) in May 2019, could encourage mid-sized Canadian financial institutions into the market.

A €250m issue would be the smallest Canadian covered bond to be publicly placed in the euro market, with previous issuance from the jurisdiction in euros having been benchmarks of €500m or greater. As such, a €250m trade would take Canadian issuance into sub-benchmark territory, although Canadian issues up to that amount have been privately placed.

Equitable’s programme is not yet listed on the Canadian covered bonds registry maintained by Canada Mortgage & Housing Corporation (CMHC), but it will be the ninth legislative covered bond programme in the country.

Operating under the trademark “Canada’s Challenger Bank”, Equitable is the eighth largest bank in Canada by market capitalisation.

“Our purpose is to drive change in Canadian banking to enrich people’s lives,” said Prokoudine. “We serve over a quarter million Canadians, growing every day, importantly through our digital platform EQ Bank, the first cloud-based bank in the country.

“Our performance consistently scores at the top of the Canadian banking sector, including for ROE, EPS growth, efficiency and capital,” he added. “Access to the covered bond market will help us maintain that position.”