Fairstone Bank of Canada debuted in covered bonds with a “convincing” €500m (C$790m) three year issue last week that achieved its broadest ever investor base on a capital markets transaction, according to officials at the Canadian issuer, vindicating its market entry.

In 2025, Fairstone Bank merged with Home Trust Company in a deal that had been announced in March 2024. With a mortgage book of about C$20bn after this “transformative” merger, covered bonds now make a lot of sense, according to Peter Walker, Senior Vice President & Treasurer of Fairstone Bank.

“Covered bonds is an asset class that Home Trust had looked at a number of years ago but did not see that project through, but it’s something we picked up again as the merged institution,” he told The CBR. “As part of the overall evolution of our funding capabilities, this is a logical source of efficient funding – particularly with the strong legislative framework that’s available in Canada – but also really prudent investor diversification, because the other funding sources we tend to rely on would be done in the Canadian market.”

The range of such issuance includes instruments ranging from senior debt to credit card securitisations and asset backed commercial paper.

In a deal announced in December 2025, Fairstone Bank is acquiring Laurentian Bank of Canada, following the sale of specified retail and SME portfolios to National Bank of Canada. Fairstone Bank’s acquisition was approved by the Canadian Minister of Finance in June and is set to close in November 2026, giving the bank even greater scale – something Walker highlights as particularly important given the 5.5% covered bond limit of the Office of the Superintendent of Financial Institutions (OSFI).

“The asset encumbrance limit in Canada is very impactful,” he said, “particularly to issuers of our size. When you look to do a transaction like this, there’s a large set-up expense and a lot of time and effort, so you want to be able to issue enough to really see the cost savings realise themselves.

“This impending business combination is expected to significantly increase the size of our balance sheet, which would in turn increases our covered bonds capacity under the applicable limit.”

Laurentian Bank itself has an existing covered bond programme, having debuted in 2021 with a C$250m five year covered bond and with one covered bond outstanding, a C$260.01m April 2027 issue, according to the Canada Mortgage & Housing Corporation (CMHC) registry. However, Laurentian Bank’s programme was set up for its solely Canadian dollar issuance – a strategy different to any other Canadian issuer – and Walker said the Laurentian programme is expected to transfer with the company, but Fairstone does not currently expect to issue from it following closing. Future senior debt and covered bond issuance by the combined entity is expected to occur at the Fairstone Bank of Canada level.

Fairstone Bank’s greater issuance capacity also means that it could announce its debut as a benchmark transaction, rather than a sub-benchmark size, which the last two Canadian entrants, Equitable Bank and Laurentian both started with.

“We think the €500m size contributed to the very positive investor reception,” said Walker. “Based on our anticipated pro forma balance sheet and subject to market conditions, we believe we should have the capacity to issue approximately one benchmark-sized euro transaction annually.”

After the merger with Home Trust, the combined entity was granted an investment grade rating by DBRS, and in January this year, it obtained a Moody’s rating of Baa2, also with a view to having two covered bond ratings. Its covered bonds are now rated Aa1/AA (high).

Although the bank has a wide range of lending, including alternative lending, its cover pool is in line with those of other Canadian issuers, noted Walker (pictured), being subject to the CMHC guide and OSFI rules.

“The uniformity of the Canadian product issued under the legislative framework is part of the reason Canadian covered bonds enjoy such a positive reception in Europe,” he added, “and ours falls into line with that.”

Fairstone Bank’s C$1.5bn programme and the bank as covered bond issuer received approval from CMHC on 8 September, and on 21 September, a roadshow for a debut three year covered bond was announced, via bookrunners BMO, DZ, LBBW, Natixis, and arranger and sole structuring advisor RBC.

The roadshow took in the ECBC and FT Live gathering in Seville the week of the mandate announcement, followed by virtual and in-person meetings in four European cities the next week, with Walker and CFO Amir Gorgi meeting over 50 investors overall.

Market conditions meanwhile deteriorated from the conditions that allowed for a month-long pre-Seville issuance bonanza, with only one issuer venturing out with a benchmark in the week commencing 28 September. However, ABN Amro and Mediobanca were able to get away successful three year trades on 6 October when a window opened, with Equitable hitting the market the following day with a €500m long three year, even if conditions were weakening again.

“Clearly, the market has been a little more challenged, with some of the conditions in Europe not so strong,” said Walker. “We remained optimistic that we would find our window, but as we concluded our marketing, we decided that we would take the time we needed to find the right access point.

“It was then very helpful to see a couple of deals go into the market, and then of course our peer Equitable Bank completed their transaction with one of the stronger books they’ve had. That certainly provided us with some confidence that we’d be able to find a window ourselves, which we then did.”

On Monday of last week (12 October), Fairstone Bank’s leads teed up launch as early as the next day. They reported consensus feedback that fair value would be around flat to Equitable or with a small premium to reflect the inaugural nature of Fairstone Bank’s deal. Equitable’s new issue was quoted at 33bp, mid, among comparables circulated by the leads.

The next day (Tuesday, 13 October), they opened books with guidance of the mid-swaps plus 45bp area for the €500m no-grow October 2029 transaction. After around an hour, the leads reported books above €1.1bn, including €100m of joint lead manager interest, and after around two hours and 50 minutes, they set the spread at 40bp on the back of books above €1.4bn, including €125m of JLM interest. The final book was some €1.54bn, with more than 50 investors participating.

“Being our inaugural issue, the level of interest that we received was remarkable,” said Ramana Kovvali, Vice President, Treasury – Capital Markets at Fairstone Bank (pictured). “The work that our dealers as well as Peter and Amir [Gorgi] put in meeting with the investors paid rich dividends – almost all of them put money on the table, as well as some new investors.

“So we achieved the largest investor base for any deal the company has ever done, and it’s also a new set of investors for us, from Europe. So this is a great tool for diversifying our funding sources as well as being on of the highly cost-efficient funding sources that we have.”

The Nordics took 25.4%, Germany, Austria and Switzerland 22.9%, the Benelux 21.7%, the UK and Ireland 15.7%, APAC 6.0%, Iberia 2.6%, and other 5.8%. Asset managers were allocated 47.6%, bank treasuries 13.4%, central banks and official institutions 25.6%, hedge funds 12.6%, and insurance companies and pension funds 0.8%.

“The deal was a great success,” said a syndicate banker at one of the leads, “a very convincing debut for a name that until a few weeks ago would have been more or less unknown to most potential buyers.”

Walker said the pricing was in line with what had been expected in light of the market conditions and investor feedback during the roadshow.

“Obviously, spreads were a little bit elevated versus prior weeks and pre-conference, but the market being where it was, we wanted to make sure that we provided initial pricing guidance that spread the net wide for an initial issuance,” he said. “We were able to tighten by 5bp to 40bp, to a handful of basis points wider than where the Equitable transaction was trading – we think investors were seeking an inaugural issuer concession and so it came in line with expectations.

“So overall, we are content with the pricing, very pleased with the demand and distribution, and we still managed to achieve pricing that, when we swap it back to Canadian dollars, is very appealing versus any other source of institutional or wholesale funding that we have in the Canadian market.”

Fairstone Bank’s debut performed in the secondary market and has traded as tight as Equitable’s 34bp re-offer spread.

As suggested by the previous supply, the three year maturity was seen as a sweet spot in the current market, while also suiting Fairstone Bank’s needs from an asset-liability management perspective. An ongoing preference for the three year part of the curve should also help the bank hit its ambitions of issuing one benchmark a year, as it rolls maturing issues, noted Walker.

“We’re very pleased with the offering,” he added. “The market backdrop was challenging, but the transaction was executed successfully and provides a strong foundation from which we can continue to develop the programme as a regular issuer. We were keen to start our issuance programme in a way that would provide a base that we can improve and evolve over time as we become the regular issuer that we’re planning to be.”