Royal Bank of Canada has announced:
it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BK. Royal Bank of Canada issued 27 million Preferred Shares Series BK at a price of $25 per share to raise gross proceeds of $675 million.
The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BK will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.Q.
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 BK at the same offering price. The underwriters have 30 days from the closing of the preferred share offering to exercise the option.
The Preferred Shares Series BK were issued under a prospectus supplement dated December 10, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.
RY.PR.Q is a FixedReset 5.50%+453, announced December 8. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.
The issue traded 1,558,368 shares today (consolidated exchanges) in a range of 24.95-30 before closing at 25.10-20, 4×15. Vital statistics are:
| RY.PR.Q | FixedReset | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-16 Maturity Price : 23.17 Evaluated at bid price : 25.10 Bid-YTW : 5.25 % |
Implied Volatility analysis must be interpreted with caution, as the fact that RY.PR.Q has such a greatly different Issue Reset Spread from the other NVCC issues (RY.PR.Z, RY.PR.H, RY.PR.J and RY.PR.M) gives it a disproportionate influence over the calculated overall slope of the relationship curve. Be that as it may, the calculation results in Implied Volatility consistent with that of other series of issues:
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interestingly, i contacted OSFI to find out why (according to Barry Critchley) RBC didn’t include a floor on this pref as the market was expecting based on recent issues, and they just gave me a runaround response and told me to contact RBC. so i did, and RBC just gave me some vague answer, which led me to think that the reason RBC didn’t include a floor is that they just didn’t need to. since these rate-reset-floor prefs are just hybrid between a straight pref and a reset, i don’t understand why OSFI would have a problem with them, anyway i guess RBC decided that 5.50/4.53 was good enough and the market should be perfectly happy with that.
i contacted OSFI to find out why (according to Barry Critchley) RBC didn’t include a floor on this pref as the market was expecting based on recent issues, and they just gave me a runaround response and told me to contact RBC. so i did, and RBC just gave me some vague answer,
Yep, that’s the standard story!
(according to Barry Critchley)
Thank you for this. I have added a link to the Critchley column to the post New Issue: RY FixedReset 5.50%+453.
i don’t understand why OSFI would have a problem with them
Me neither!
i guess RBC decided that 5.50/4.53 was good enough and the market should be perfectly happy with that.
Well 5.50%+453 certainly got the issue sold in monster-size, but I’m sure that including a floor would have allowed them to trim at least 25bp off the rates paid.