National Bank of Canada is issuing LRCNs:
it has entered into an agreement with a group of agents led by National Bank Financial Inc. for the issuance of $500 million of Limited Recourse Capital Notes, Series 1 (Non-viability Contingent Capital (NVCC)) (Subordinated Indebtedness) (the “Notes”).
The Notes will bear interest at a rate of 4.300% annually, payable semi-annually, for the initial period ending on but excluding November 15, 2025. Thereafter, the interest rate on the Notes will reset every five years at a rate equal to the prevailing 5-year Government of Canada Yield plus 3.943%. The Notes will mature on November 15, 2080.
Concurrently with the issuance of the Notes, National Bank will issue Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares, Series 44 (non-viability contingent capital (NVCC)) (the “Series 44 Preferred Shares”) to be held by Computershare Trust Company of Canada as trustee for a newly-formed trust (the “Limited Recourse Trust”). In case of non-payment of interest on or principal of the Notes when due, the recourse of each Note holder will be limited to that holder’s proportionate share of the Limited Recourse Trust’s assets, which will consist of Series 44 Preferred Shares except in limited circumstances.
National Bank may redeem the Notes during the period from October 15 to and including November 15, commencing in 2025 and every five years thereafter, only upon the redemption by National Bank of the Series 44 Preferred Shares held in the Limited Recourse Trust, in accordance with the terms of such shares and with the prior written approval of the Superintendent of Financial Institutions (Canada) (the “Superintendent”), in whole on not less than 15 nor more than 60 days’ prior notice.
The purpose of the sale of the Notes is to enlarge National Bank’s Tier 1 capital base with a view to optimizing National Bank’s capital structure within the parameters prescribed by the Superintendent for bank capital requirements. The net proceeds from the sale of the Notes will be added to National Bank’s general funds and will be utilized for general banking purposes. The expected closing date is on or about September 9, 2020. National Bank intends to file in Canada a prospectus supplement to its August 17, 2020 base shelf prospectus in respect of this issue.
This issue is rated BBB by DBRS:
DBRS Limited (DBRS Morningstar) assigned a provisional rating of BBB with a Stable trend to the National Bank of Canada’s (National or the Bank) NVCC Additional Tier 1 (AT1) Limited Recourse Capital Notes (the Capital Notes). DBRS Morningstar assigned the rating equal to the Bank’s Intrinsic Assessment of A (high) less four rating notches, which is consistent with DBRS Morningstar’s standard notching for capital instruments with contingent risks and its ratings for the Bank’s NVCC Preferred Shares. The provisional rating for the Capital Notes is one notch below the rating of National’s NVCC Subordinated Debt.
DBRS Morningstar notes that the Office of the Superintendent of Financial Institutions granted Tier 1 capital treatment to the Capital Notes.
The ‘BB+’ issue rating is four notches below NBC’s SACP, incorporating:
- A deduction of one notch, the minimum downward notching from the SACP under our criteria for subordinated debt, reflecting contractual subordination;
- A deduction of two additional notches, reflecting that the coupon payments are fully cancellable, at the issuer’s discretion; and
- A deduction of an additional notch to reflect that this subordinated note features a (mandatory) contingent conversion (non-viability contingent capital [NVCC]) trigger. Should a trigger event occur (as defined by the Office of the Superintendent of Financial Institutions’ [OSFI] guideline for Capital Adequacy Requirements), each preferred share held in the limited recourse trust will automatically and immediately be converted, without the holder’s consent, into a number of fully paid and freely tradable common shares of the bank, determined in accordance with a conversion formula.
This was probably the impetus behind yesterday’s market pop.
PerpetualDiscounts now yield 5.41%, equivalent to 7.03% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.89%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 415bp from the 420bp reported August 26.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1157 % | 1,680.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1157 % | 3,084.4 |
| Floater | 4.97 % | 5.02 % | 62,523 | 15.37 | 3 | -0.1157 % | 1,777.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0113 % | 3,537.9 |
| SplitShare | 4.80 % | 4.38 % | 40,894 | 3.69 | 7 | 0.0113 % | 4,225.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0113 % | 3,296.5 |
| Perpetual-Premium | 5.36 % | 4.69 % | 82,198 | 0.64 | 17 | -0.2116 % | 3,116.9 |
| Perpetual-Discount | 5.29 % | 5.41 % | 82,799 | 14.77 | 17 | -0.1400 % | 3,458.7 |
| FixedReset Disc | 5.37 % | 4.18 % | 125,202 | 16.29 | 68 | -0.2900 % | 2,122.4 |
| Deemed-Retractible | 5.09 % | 4.97 % | 104,881 | 15.09 | 27 | -0.1643 % | 3,404.4 |
| FloatingReset | 2.82 % | 2.33 % | 45,724 | 1.39 | 3 | -0.6599 % | 1,820.7 |
| FixedReset Prem | 5.25 % | 3.91 % | 228,742 | 0.86 | 11 | 0.0825 % | 2,622.8 |
| FixedReset Bank Non | 1.95 % | 2.51 % | 135,269 | 1.39 | 2 | -0.6426 % | 2,834.3 |
| FixedReset Ins Non | 5.59 % | 4.35 % | 96,140 | 16.31 | 22 | 0.2970 % | 2,153.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TD.PF.D | FixedReset Disc | -26.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 5.38 % |
| TRP.PR.G | FixedReset Disc | -11.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 14.26 Evaluated at bid price : 14.26 Bid-YTW : 5.94 % |
| PWF.PR.P | FixedReset Disc | -6.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 10.39 Evaluated at bid price : 10.39 Bid-YTW : 4.88 % |
| GWO.PR.Q | Deemed-Retractible | -3.93 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.45 Evaluated at bid price : 23.70 Bid-YTW : 5.43 % |
| CU.PR.C | FixedReset Disc | -2.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 4.48 % |
| SLF.PR.J | FloatingReset | -2.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 9.70 Evaluated at bid price : 9.70 Bid-YTW : 3.99 % |
| BIK.PR.A | FixedReset Disc | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.11 Evaluated at bid price : 24.50 Bid-YTW : 5.91 % |
| SLF.PR.E | Deemed-Retractible | -1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.91 Evaluated at bid price : 22.15 Bid-YTW : 5.07 % |
| MFC.PR.F | FixedReset Ins Non | -1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 10.22 Evaluated at bid price : 10.22 Bid-YTW : 4.47 % |
| TRP.PR.C | FixedReset Disc | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 9.20 Evaluated at bid price : 9.20 Bid-YTW : 5.35 % |
| BAM.PF.G | FixedReset Disc | -1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 5.24 % |
| W.PR.K | FixedReset Disc | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 24.44 Evaluated at bid price : 25.02 Bid-YTW : 5.29 % |
| SLF.PR.B | Deemed-Retractible | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.69 Evaluated at bid price : 24.00 Bid-YTW : 4.99 % |
| CU.PR.F | Perpetual-Discount | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.90 Evaluated at bid price : 22.40 Bid-YTW : 5.02 % |
| PWF.PR.L | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.54 Evaluated at bid price : 23.81 Bid-YTW : 5.41 % |
| TRP.PR.F | FloatingReset | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 10.72 Evaluated at bid price : 10.72 Bid-YTW : 4.80 % |
| CU.PR.H | Perpetual-Premium | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 24.80 Evaluated at bid price : 25.10 Bid-YTW : 5.25 % |
| GWO.PR.F | Deemed-Retractible | -1.10 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-10-02 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : -7.71 % |
| RY.PR.M | FixedReset Disc | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 3.87 % |
| SLF.PR.H | FixedReset Ins Non | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 4.41 % |
| BAM.PF.F | FixedReset Disc | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 17.14 Evaluated at bid price : 17.14 Bid-YTW : 5.11 % |
| TD.PF.E | FixedReset Disc | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 3.84 % |
| BAM.PF.A | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 5.04 % |
| SLF.PR.C | Deemed-Retractible | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 22.17 Evaluated at bid price : 22.45 Bid-YTW : 4.94 % |
| BIP.PR.F | FixedReset Disc | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.91 Evaluated at bid price : 22.25 Bid-YTW : 5.72 % |
| TD.PF.L | FixedReset Disc | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.14 Evaluated at bid price : 24.60 Bid-YTW : 3.96 % |
| BIP.PR.D | FixedReset Disc | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 22.16 Evaluated at bid price : 22.51 Bid-YTW : 5.54 % |
| TRP.PR.A | FixedReset Disc | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 12.75 Evaluated at bid price : 12.75 Bid-YTW : 5.13 % |
| CM.PR.Y | FixedReset Disc | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.29 Evaluated at bid price : 25.10 Bid-YTW : 4.17 % |
| MFC.PR.H | FixedReset Ins Non | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 4.33 % |
| IAF.PR.B | Deemed-Retractible | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 22.63 Evaluated at bid price : 22.88 Bid-YTW : 5.02 % |
| CM.PR.T | FixedReset Disc | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 22.94 Evaluated at bid price : 24.10 Bid-YTW : 4.10 % |
| BIP.PR.A | FixedReset Disc | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 17.85 Evaluated at bid price : 17.85 Bid-YTW : 5.56 % |
| BMO.PR.Y | FixedReset Disc | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 3.99 % |
| BMO.PR.D | FixedReset Disc | 1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.01 Evaluated at bid price : 23.35 Bid-YTW : 3.90 % |
| CM.PR.Q | FixedReset Disc | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 19.56 Evaluated at bid price : 19.56 Bid-YTW : 4.10 % |
| IFC.PR.G | FixedReset Ins Non | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 18.40 Evaluated at bid price : 18.40 Bid-YTW : 4.50 % |
| BIP.PR.E | FixedReset Disc | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.65 Evaluated at bid price : 22.08 Bid-YTW : 5.65 % |
| BAM.PR.T | FixedReset Disc | 1.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 5.06 % |
| SLF.PR.G | FixedReset Ins Non | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 10.70 Evaluated at bid price : 10.70 Bid-YTW : 4.24 % |
| TD.PF.J | FixedReset Disc | 2.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 21.16 Evaluated at bid price : 21.16 Bid-YTW : 3.96 % |
| TRP.PR.B | FixedReset Disc | 5.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 8.95 Evaluated at bid price : 8.95 Bid-YTW : 4.71 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.H | Deemed-Retractible | 420,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.48 Evaluated at bid price : 23.75 Bid-YTW : 5.10 % |
| TD.PF.L | FixedReset Disc | 164,660 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.14 Evaluated at bid price : 24.60 Bid-YTW : 3.96 % |
| RY.PR.J | FixedReset Disc | 104,995 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 20.39 Evaluated at bid price : 20.39 Bid-YTW : 3.89 % |
| BMO.PR.T | FixedReset Disc | 62,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 17.45 Evaluated at bid price : 17.45 Bid-YTW : 4.09 % |
| BMO.PR.D | FixedReset Disc | 49,740 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 23.01 Evaluated at bid price : 23.35 Bid-YTW : 3.90 % |
| RY.PR.Z | FixedReset Disc | 46,130 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-09-02 Maturity Price : 18.42 Evaluated at bid price : 18.42 Bid-YTW : 3.84 % |
| There were 19 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PF.D | FixedReset Disc | Quote: 15.02 – 20.95 Spot Rate : 5.9300 Average : 3.3341 YTW SCENARIO |
| EIT.PR.A | SplitShare | Quote: 25.40 – 27.00 Spot Rate : 1.6000 Average : 0.9192 YTW SCENARIO |
| IFC.PR.F | Deemed-Retractible | Quote: 25.11 – 26.31 Spot Rate : 1.2000 Average : 0.6649 YTW SCENARIO |
| GWO.PR.Q | Deemed-Retractible | Quote: 23.70 – 24.90 Spot Rate : 1.2000 Average : 0.7045 YTW SCENARIO |
| CU.PR.C | FixedReset Disc | Quote: 16.00 – 17.00 Spot Rate : 1.0000 Average : 0.6122 YTW SCENARIO |
| IAF.PR.G | FixedReset Ins Non | Quote: 19.00 – 20.00 Spot Rate : 1.0000 Average : 0.7433 YTW SCENARIO |