First SEC Registered Covered Bonds Sale in the US by RBC

Date Published 9/17/2012
Author Marja Hoek-Smit
Country Canada, United States

After a lengthy legal process, the Royal Bank of Canada (RBC) has become the first bank to register its covered bonds with the US Securities and Exchange Commission. On September 12, 2012, RBC sold $2.5billion worth of 5-year SEC-registered covered bonds at 35 basis points more than the benchmark mid-swaps rate.The bonds are backed by a cover pool of mortgages on the bank’s balance sheet as well as by RBC as the issuing bank. This is an important step on the way to introduce mortgage bonds into the US investor market, by way of a non-US regulated bank.

The US Congress is still finalizing the legal framework for covered bonds in the US. One of the main reasons for the delay in the legislative process is the issue of the encumbrance of bank assets pledged to priority covered bond investors (the cover pool of first-priority, ring-fenced, encumbered assets) which makes such assets unavailable to senior unsecured creditors and depositors in the event of bank insolvency. The legal frameworks for covered bonds and bank insolvency have to adequately address the costs and risks of such asset encumbrances.

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