Scotiabank tests sales of Canadian-style loss-absorbing notes in the US

(Bloomberg) — Bank of Nova Scotia will become Canada’s first bank to sell a junior bond known as limited recourse capital notes in a currency other than crazy.

Most read by Bloomberg

Toronto-based Scotiabank will contact US dollar-based investors Monday before deciding to go ahead with the deal, according to people familiar with the matter, who asked not to be named when discussing a private transaction. In June, the bank sold LRCNs in the Canadian dollar corporate bond market.

Canadian banks have sold $15.8 billion ($12.5 billion) worth of LRCNs since July 2020, when the Office of the Superintendent of Financial Institutions classified the securities as additional Tier 1 loss-absorbing buffers, according to data collected by Bloomberg. . Such transactions, previously denominated in Canadian dollars, give issuers tax deductions on interest payments, lowering their all-in borrowing costs.

Scotiabank’s C$1.25 billion in 3.7% bonds maturing in 2081 with a call option in June 2026 are quoted at an equivalent spread of approximately 252 basis points against US Treasuries, according to Bloomberg data. The notes have been rated at their lowest investment grade by S&P Global Ratings and Moody’s Investor Service.

A Scotiabank press officer did not immediately comment on the potential deal.

Most read from Bloomberg Businessweek

©2020 Bloomberg LP