Canada

Scotiabank filed for SEC registration this week, increasing the likelihood of other issuers filing programmes with the SEC, a US lawyer told The Cover on Thursday.

Santander Chile is set to issue Chile’s first domestic covered bond this month. It will be triple-A rated and have a 15 year maturity. Meanwhile in Canada, Bank of Nova Scotia is lining up an SEC registered deal, the first off the country’s new legal framework.

The covered bond market is open for almost any issuer and though its unlikely that activity will pick up quickly, there are a number of potential transactions expected in the coming weeks, bankers told The Cover on Monday.

Under a new model, that will be used to analyse Canadian covered bonds, Fitch said on Tuesday that Canadian house prices were overvalued by a real 20%, which is more than bankers had previously said.

Canada Mortgage Housing Corp’s (CMHC) new covered bond guidelines have a host of investor friendly attributes but will also raise credit and market risk in borrower programmes, according to Moody’s.

Canada Mortgage Housing Corp (CMHC) has published the final details of Canada’s covered bond framework, allowing issuers to begin building new programmes for a return to market in 2013. Though uninsured mortgages are prohibited, in-depth disclosure requirements should go down well with investors and stand borrowers looking at SEC and 3(a)(2) issuance in good stead.

Royal Bank of Canada on Thursday priced its second SEC registered covered bond of the year, a $1.5bn three year deal, through joint leads Citi, RBC Capital Markets and UBS. The transaction took advantage of strong market conditions and a thirst for Canadian exposure unlikely to be quenched until at least the second quarter next year.

Canadian banks have issued five benchmark covered bond deals so far this year with a total value of $11.75bn, reinforcing their position as the dominant issuers of US dollar covered bonds. Demand for Canadian covered bonds has remained robust and recently valuations have improved on expectations of diminishing supply. This fundamental value is a function of the strong credit worthiness of Canadian banks and the underlying mortgage collateral which is largely insured by the Canadian Mortgage and Housing Corporation (CMHC), Canada’s national housing agency. The high quality collateral, along with CMHC insurance, gives US investors a lot of comfort and an ability to view these bonds as having minimal credit risk, almost as quasi agency bonds. And with US domestic market supply of agency bonds contracting, investors have had considerable cash to put to work.

The Canadian government has released details of domestic covered bond legislation that will ban issuers from using insured mortgages as collateral. Spreads of Canadian covered bonds issued under the new framework will be wider than those backed by insured mortgages, said analysts, and with just months to go until the ban comes into place, a last flurry of insured deals could hit the market.

Canadian issuers will no longer be able to use insured mortgages as collateral for covered bonds. Finance minister Jim Flaherty introduced a bill into the Canadian parliament on Thursday that will create a register for covered bond issuers. The bill will also prohibit the use of mortgages insured by private insurers or by the government backed Canadian Mortgage and Housing Corp (CMHC).

Norway’s Sparebank 1 Boligkreditt became the third European issuer to bring a five year dollar deal in the last two weeks, with all three deals offering the same spread. Also in North America, the Canadian government released its 2012 budget, though details of prospective covered bond legislation remain scarce.

Toronto Dominion Bank raised $3bn of five year funding off a well subscribed book 6bp tighter than a recent trade from Canadian peer Caisse Centrale Desjardins du Quebec.