Debt deals bolster Big Banks’ funding

Scotiabank, TD raise money with senior bonds

Bank of Nova Scotia and Toronto- Dominion Bank bolstered their funding and loss- absorbing buffers as Canada Mortgage Housing Corp. opened the books for a new transaction amid concerns that global credit markets are facing their biggest test since the 2008 financial crisis.

Scotiabank raised $ 1.75 billion Tuesday by tapping senior bail- in bonds maturing in three years, then accessed the euro market Wednesday for 1.25 billion euros of covered bonds, according to Bloomberg data. TD Bank issued $ 1.75 billion of fiveyear bail- in bonds Tuesday, and later CMHC named arrangers for its new benchmark transaction of bonds with a similar duration.

Spreads in the Canadian dollar corporate bond market tightened marginally Tuesday to around 158 basis points from 160.2 basis points Monday — still the highest since April 2016, according to Bloomberg Barclays indexes. The three Canadian issuers are tapping the primary market as G-7 central banks and finance chiefs pledge to take action against the impact of the novel coronavirus on economic growth.

Spokespeople for Scotiabank and TD Bank didn’t provide comment.

Canada Housing Trust, an issuance vehicle of CMHC, priced $ 6 billion of the fiveyear bonds at a spread of 48 basis points, in line with price guidance. A $ 500- million portion was purchased by Bank of Canada.

“We were very pleased to be able to access markets during this recent bout of global volatility,” CMHC treasurer David Ayre said in an emailed statement. “The deal was well-subscribed with around 75 investors in the book, of which approximately 40 per cent was distributed to international investors.”

The agency went ahead with the transaction even as the risk spread on its existing debt, which holds the same top investment- grade rating as Canadian government bonds, widened. The extra yield investors demand to hold CHT’S $ 5.5 billion of bonds due March 2025 over the Canadian interpolated curve reached 45 basis points Monday, according to Bloomberg. That’s the widest gap since December 2018.

Senior bail- in bonds are part of the measures that regulators worldwide have been utilizing to prevent a repeat of the 2008 financial crisis, which saw developed nations recapitalize failing lenders with taxpayer money to keep them from further harming the economy.

While covered bonds aren’t eligible for bail-in buffers, it’s an extremely stable market- based funding tool as the securities are backed by a pool of mortgages on top of a senior call over the lenders’ assets. Canadian covered bonds are so far rated at the top credit rating.