RBC Plans Australian Covered Bond Market’s First Sale for 2013

Royal Bank of Canada is marketing Australian dollar-denominated covered bonds, the first such transaction by any borrower this year.

Canada’s largest lender by assets is planning to sell three-year notes in its debut covered bond offering in the Australian market, according to Gerard Perrignon, managing director of debt capital markets at RBC Capital Markets in Sydney. The securities are being marketed at about 55 basis points more than the swap rate, according to a person familiar with the matter who asked not to be identified because the terms haven’t been set.

“RBC views the Aussie dollar market as an important source of diversity away from its core funding markets in North America,” said Perrignon. “This opportunity has arisen as a result of economics in the Australian-dollar market being comparable to the economics in core North American markets.”

Covered bonds, which are backed by the borrower and mortgages that stay on its balance sheet, were last sold in Australia by Suncorp-Metway Ltd. in November, when the Brisbane-based lender priced A$600 million ($555 million) of five-year securities, data compiled by Bloomberg show. Since then, home-loan providers have opted to raise wholesale funds through either unsecuritized notes and the revived market for residential mortgage-backed securities.

Covered notes, a form of issuance that was pioneered in 18th century Prussia, typically carry AAA credit ratings and tend to be issued at narrower spreads than debt that is not backed by collateral. The RBC transaction is expected to price tomorrow and is being managed by the bank itself, Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd., Perrignon said.

Before it's here, it's on the Bloomberg Terminal.