Big Deals: RBC closes US$2.5B issue of SEC-registered covered bonds

On Wednesday, RBC closed the first-ever covered bond issue registered with the US Securities and Exchange Commission —  allowing the bank to offer the bonds to retail investors.

The registration process for the US$2.5 billion offering was lengthy (described by Reuters as “torturous” but worthwhile for the bank) and is a shift away from the usual Rule 144A route. Lexpert caught up with Norton Rose Canada’s Andrew Fleming – who co-led the Canadian team advising RBC on the deal – to get a sense of the process.

“First, we had to get a no-action letter and second, we were dealing with a whole new level of disclosure because covered bonds have never been issued on a registered basis in the US,” Fleming explains. Those two issues combined to made the process much longer than expected and much longer than usual.

Having said that, anybody who comes now into the marketplace will not need to get a no-action letter because there’s one already out there, and they will not have the same amount of discussion with the SEC on disclosure. People who come after will not experience the same delays.

In the new legislative framework, not yet in force, all Canadian financial institutions will have to use non-guaranteed mortgages as collateral for their covered bond programs. RBC was in a unique position, Fleming explains, because the bank doesn’t have any insured mortgages in its programs.

All of the other banks are being precluded from going into the covered bond market until such time as the legislative process is complete and they can come up with a program which is non-insured, he says. The timing for Royal was great. Whether we’ll see a rush to market, the answer is probably not, because everyone else has to wait for the legislation to come into force.

Norton Rose Canada partner Eric Reither was the other co-lead on the team, which also included Peter Noble and Matthew Lippa (corporate finance and securities); and Adrienne Oliver and Glenn Hines (tax). US counsel for RBC was Morrison & Foerster along with Sullivan & Cromwell. RBC in-house counsel were Erin Dion and Joseph Hillier.

Acting for the dealers were McCarthy Tétrault, Davis Polk & Wardwell and Allen & Overy.

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