Royal Bank of Canada has been given the all-clear to sell what would be the first fully SEC registered covered bonds after the regulator issued an effective notice yesterday (Monday) afternoon, although a blackout period starting tomorrow is set to put off issuance for at least a month.

The effectiveness of the registration comes two-and-a-half months after RBC received a “no action” letter from the US regulator on 18 May, as revealed by The Covered Bond Report. The bank has filed two amendments to a Form F-3 registration statement since then. RBC Capital Markets was sole programme structuring arranger and advisor on the SEC covered bond shelf.

The final approval of the registration paves the way for what would be the first fully SEC registered covered bond, an issuance format that broadens the potential US investor base by, for example, being eligible for major indices, such as the Barclays Aggregate. US targeted issuance to date has been via 144A private placements, with many accounts facing restrictions on the amount of offerings in this format they can purchase.

Syndicate bankers welcomed the latest development today (Tuesday), with one saying that he expects the investor reception to the news and the launch of a deal to be positive.

“Some very high profile accounts have been crying out to be able to buy more of the product,” he said, “and to do that it needs index eligibility.”

He said that it is difficult to quantify how the SEC registered format will influence pricing in comparison with that for issuance in the 144A/Reg S format, in particular given that a second variable is at play in the Canadian market: Canadian covered bond legislation is being implemented that bans issuance of covered bonds backed by mortgages insured by Canada Mortgage & Housing Corp (CMHC). Although RBC does not issue CMHC-backed covered bonds, all other Canadian issues have done so, and the move to the new regime is affecting dynamics in the Canadian sector.

Those caveats aside, however, he said that a fully SEC registered non-CMHC backed covered bond could come around “fairly high single digits if not 10bp” tighter versus a theoretical 144A/Reg S non-CMHC issue.

“I think it’s worth that much to investors in terms of the index eligibility,” he said, adding that while liquidity and price transparency are also important for the covered bond buyer base, and would be improved by virtue of SEC registered covered bonds being eligible for TRACE (Trade Reporting & Compliance Engine), these aspects are secondary to index eligibility.

Another syndicate banker said that while there would be some savings on a first SEC registered deal from RBC the benefits are more of a “programmatic” nature.

He said that he would imagine that RBC would come to market with a public deal “sooner rather than later”, and that there is strong demand for quality offerings, while another syndicate official noted that the bank is about to enter into blackout and that a deal may not emerge until that has passed.

RBC releases third quarter results on Thursday, 30 August.

For further coverage of RBC’s move to obtain SEC covered bond registration, including the perceived implications for the development of a US domestic issuer base, please select Royal Bank of Canada from the issuer information drop-down menu in the right hand column