5 Responses to “July 19, 2024”

1. Prefhound says:

   July 22, 2024 at 10:08 am

   James:

   I see RY issued a new institutional NVCC Fixed Reset Pref (see press release from July 17 below) at an initial 6.698% with a reset spread of 3.4%! Although institutional, new issues should breathe some life into the Pref market. After 3 RY Pref redemptions in 2024 of issues with Reset Spreads of 2.21 to 2.38% in favour of LRCNs, 3.4% seems a little shocking and would seem to cast some doubt on potential redemption of RY.PR.J in May 2025 (Reset Spread = 2.74%).

   Your thoughts?
   Is this going to back up an LRCN – i.e. a sale to ComputerShare?
   Is the “pretend debt” of LRCN model breaking down?
   Is this somehow cheaper than a public pref issue?
   What is the yield premium for a non-marketable Pref?
   Implications for other outstanding RY Prefs?

   Thanks
   Prefhound

   Royal Bank of Canada announces Institutional NVCC Preferred Share Issue

   TORONTO, July 17, 2024 – Royal Bank of Canada (TSX: RY) and (NYSE: RY) today announced a domestic public offering of Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares, Series BW (“Preferred Shares Series BW”).

   Royal Bank of Canada will issue to certain institutional investors 600 thousand Preferred Shares Series BW priced at $1,000 per share to raise gross proceeds of $600 million.

   The Preferred Shares Series BW will yield 6.698 per cent annually, payable semi-annually, as and when declared by the Board of Directors of Royal Bank of Canada, for the initial period ending November 24, 2029. Thereafter, the dividend rate will reset every five years at a rate equal to 3.40 per cent over the 5-year Government of Canada bond yield.

   Subject to regulatory approval, the bank may redeem the Preferred Shares Series BW in whole or in part at par, during the period from October 24, 2029 to and including November 24, 2029 and during the period from October 24 to and including November 24 every five years thereafter, on not less than 15 days and not more than 60 days’ notice.

2. IrateAR says:

   July 23, 2024 at 7:54 am

   My understanding is that if an LRCN does not make payments the recourse is that institutional prefs are delivered to the note owners. To be confident that there will be a functioning market for these prefs the regulators require that the banks issue a certain amount of institutional prefs as a proof of concept based on the quantity of LRCN desired.

   So it’s the opposite – in general the issuance of an institutional pref is a sign the banks are wanting to issue more LRCNs and are if anything more likely to redeem the existing retail prefs.

   Institutional prefs do yield a higher spread than retail due to the lack of liquidity and institutions being pickier. 3.4% is not an unusual spread for them. It’s a cost the bank takes to get access to LRCNs.

   (Not an expert so details may be wrong but I think this is broadly correct)

3. Nestor says:

   July 23, 2024 at 7:59 am

   is it a matter of time before more insurance co’s start doing the same thing? issuing LRCN’s and redeeming prefs? I think Manulife did this in 2021 once. but the insurance co’s haven’t after. food for thought..

4. IrateAR says:

   July 23, 2024 at 3:42 pm

   They have less resets than perps and some of them are really low spreads… looks like MFC.PR.M and MFC.PR.N are the only reset candidates in the next couple years. Those probably not but possible I guess.

   Most of the perps were issued when rates were lower so I don’t think they’re appealing to redeem but if rates move lower could see it.

5. Nestor says:

   July 23, 2024 at 5:57 pm

   thanks Irate.. makes sense.