Royal Bank of Canada (TSX:RY) Friday announced a $1 billion offering of Basel III-compliant non-viability contingent capital (NVCC) subordinated debt through its Canadian medium term note program. This is first ever issue of subordinated debt by a Canadian bank that would convert into common shares if the bank ever ran into financial trouble.
Moody’s Investors Service said Friday it has assigned a rating of Baa1 to the notes. “This marks the first issuance in Canada of contractual non-viability subordinated debt,” Moody’s notes.
The bank says that proceeds from the issuance will be added to the bank’s general funds and used for general banking purposes.
The proceeds also provide loss absorption, Moody’s notes, as the securities would automatically convert into common shares, based on a formula set by federal bank regulator, the Office of the Superintendent of Financial Institutions (OSFI), if the bank ever reached the point where it was in danger of failing.
“This incremental loss absorption feature is credit positive for holders of senior securities of RBC, as a layer of loss absorbing securities will reduce the risk of losses incurred higher in the capital hierarchy if the bank gets into financial distress,” it says.
Earlier this year, the bank also issued the first ever NVCC preferred shares.