RBC prepares to blaze trail with Canada’s first bail-in eligible bonds

Royal Bank of Canada is getting ready to sell the country’s first bail-in eligible senior securities.

The bank held a call with fixed-income investors Tuesday to discuss the legal framework for the securities, according to people who had access to the call. Canadian lenders will be able to start issuing the new securities after Sept. 23, when the bail-in framework is officially put in place. Bank representatives didn’t respond to requests for comment made after business hours.

RBC, Canada’s secondbiggest bank, was long seen as the lender that would first offer the new securities because it’s historically been a trend setter for new types of securities in the Canadian bond market. As the country was getting its banking system compliant with Basel III regulations, RBC was first to sell nonviable contingent capital preferred shares in January 2014. A few months later it also sold the market’s first NVCC subordinated debt.

The bail-in regime has been in the works since 2013 when the government first said it would take steps to manage the risks of banks labelled “systemically important” by the Office of the Superintendent of Financial Institutions watchdog.

Canada wanted to be prepared for the contingency of another financial crisis.

The bail-in eligible securities are riskier than deposit notes because they can be converted into equity in case a bank gets into trouble. They will gradually replace deposit notes, the cheap and versatile source of funding for Canadian banks that’s become the backbone for the country’s corporate bond market.