TD Bank reopens US callable Tier 2 market with blowout deal

Fri Sep 9, 2016 1:04pm EDT
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By Will Caiger-Smith

NEW YORK, Sept 9 (IFR) - Toronto-Dominion Bank found overwhelming demand from global investors for a US$1.5bn callable Tier 2 bond this week, buoying hopes the US dollar market will open up to more banks looking to cut the cost of complying with capital regulations.

The deal was the first of its kind with a call feature sold into the US since 2013.

Banks issuing into the US have traditionally stuck to bullet deals instead, mainly because investors are sceptical of the incentive to call and so charge banks more for the option, bankers said.

But investors appear to be getting more comfortable with the structure - believing that TD has a strong incentive to retire the debt after 10 years - while a broad-based hunt for yield has also helped boost demand for riskier securities.

"We have heard for the longest time that the US market is a bullet-only market, but people are getting more comfortable now with valuing the call option," one financial institutions analyst told IFR.

A banker on the deal said it would not have been possible to sell the callable issue into the US market without the tremendous rally in credit markets over recent months.

The need to find bigger returns is pushing investors into riskier subordinated debt, even if there is only a sliver of extra spread, the banker said.

"We needed that kind of backdrop so investors would be more open-minded about fair value on a callable trade."   Continued...