Great-West turns to growing loonie hybrid debt to help finance U.S. venture

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Canadian banks and insurance companies have issued at least $11.9 billion of LRCNs since July 2020

Canadian banks and insurance companies have issued at least $11.9 billion of LRCNs since July 2020 when Royal Bank of Canada opened the market by issuing $1.75 billion of 60-year notes which can be called after five years, Bloomberg data show. The securities, which are eligible for the financial institutions’ loss-absorbing buffers, allow issuers to a have tax deductions on the interest payment, so reducing their all-in borrowing costs.

“The market is comfortable in buying in size,” John van Boxmeer, a senior research analyst for global Fixed Income at CIBC Asset Management Inc., said Wednesday in an interview. The attractive coupons amid historically low yields are “part of the equation,” supporting the demand, he said. A potential Great-West 60-year LRCN offering callable after five years would have a coupon of around 3.6 per cent if issued at this time, said Boxmeer. The transaction would be used to refinance a bridge loan provided by a Canadian bank, a representative of Great-West said in an emailed reply to questions.

In June, Sun Life priced $1 billion of LRCNs to yield 3.6 per cent after getting an order book of around four times the deal amount, people familiar with the sale said at that time. The securities are quoted at a yield of 3.47 per cent, according to Bloomberg bid prices Wednesday. In February Manulife also priced $2 billion of the notes.Article content

 

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