New Issue: RY Straight, 5.25%, NVCC

Royal Bank of Canada has announced:

announced a domestic public offering of Non-Cumulative, Preferred Shares Series BJ.

Royal Bank of Canada will issue 6 million Preferred Shares Series BJ priced at $25 per share to raise gross proceeds of $150 million. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series BJ at the same offering price.

The Preferred Shares Series BJ will yield 5.25 per cent annually, payable quarterly, as and when declared by the Board of Directors of Royal Bank of Canada.

Subject to regulatory approval, on or after February 24, 2021, the bank may redeem the Preferred Shares Series BJ in whole or in part at a declining premium.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is October 2, 2015.

We routinely undertake funding transactions to maintain strong capital ratios and a cost effective capital structure. Net proceeds from this transaction will be used for general business purposes.

It’s nice to see another Straight!

Implied Volatility analysis shows that market differentiation between NVCC compliant and non-compliant issues is significant:

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When only the NVCC-compliant issues are used for fitting, it appears that Implied Volatility is very low (which suggests that the relationship will steepen somewhat in the future) implying that higher-coupon issues are relatively expensive. However, there are only four data points to support this conclusion and the variety of coupon rates is minimal, so don’t mortgage the farm!

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