Royal Bank of Canada

is looking at selling Additional Tier 1 notes in Canadian dollars, to help refinance AT1 debt that it can soon buy back, according to people with knowledge of the matter.

The new notes would probably pay less than three percentage points, or 300 basis points, more than Canadian government benchmarks, according to the people, who asked not to be identified discussing private information. The bank has had early discussions with money managers and pricing information is preliminary, the people said, noting spreads may narrow further.

A spokesperson for RBC didn’t respond to a request for comment.

RBC was among the first Canadian banks in 2020 to issue AT1 securities called Limited Recourse Capital Notes, a form of loss-absorbing notes that can convert to equity when banks run into trouble. RBC’s $1.75-billion bond with a 4.5 per cent coupon and a 2080 maturity will become redeemable in October.

A redemption would see RBC’s AT1 ratio drop to 1.3 per cent, down from the current 1.6 per cent. That means the bank would need to sell more such notes to hit the 1.5 per cent target, according to Himanshu Bakshi, a senior credit analyst at Bloomberg Intelligence.

The bank has the option to raise the capital in the U.S. dollar market, a step it already took once this year in June when it sold US$1.25 billion of AT1 notes. A series of Canadian banks have sold AT1 securities there recently.

Canadian Imperial Bank of Commerce

’s sold AT1 notes in the U.S. in July. Last week, CIBC announced its plan to redeem its $750 million LRCN with a 4.375 per cent coupon. Its AT1 capital ratio remains above the 1.5 per cent target even after the upcoming redemption, and the bank may not need to sell more, according to BI’s Bakshi.

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Bank of Montreal

and

National Bank of Canada

also have LRCN call dates coming up in October.

Bloomberg.com