Bank of Nova Scotia has completed its first synthetic securitisation to achieve capital relief through significant risk transfer, making it the latest of several Canadian lenders to enter the thriving market.
BNP Paribas arranged the transaction, dubbed Granville, which references a US$9bn portfolio of loans to large US and Canadian corporations, according to market sources. The first-loss tranche was placed with investors in the form of US$720m in credit-linked notes. The deal has a three-year revolving period and closed last week. A spokesperson for Scotia declined to comment.
“The Canadian banks have been busy this year,” said an investor, who added that Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce had all completed transactions recently.
Bank of Montreal has a longer track record than its peers in the SRT market, having been doing such deals for several years. National Bank of Canada is the last of the big six Canadian banks that has not yet done an SRT.
The rise in SRT activity among Canadian banks comes at a time of rapid growth for the market more generally, as banks in Europe have also increasingly been turning to the product as a way of managing capital requirements.
Issuers have been encouraged by the greater regulatory certainty in Europe and the trend was given a further boost when Credit Suisse’s Additional Tier 1 bonds were written off earlier this year, disrupting the bank capital market.
The SRT market is poised for yet more expansion when US authorities spell out their views on the structures later this year, which could encourage large and small US banks to start issuing at scale. Merchants Bank of Indiana issued a US$158m credit-linked deal in March and JP Morgan has been working on a transaction to transfer risk associated with leveraged revolving credit facilities, according to sources.
Estimates of the size of the SRT market vary because the deals are private. The International Association of Credit Portfolio Managers reported in May that €15bn in protected tranches had been issued in 2022, referencing a combined notional pool size of €200bn. Both figures were 50% higher than the previous issuance record. The IACPM’s data was based on submissions from 29 banks.