Royal Bank of Canada is trying to sell its commercial paper to U.S. investors for the first time after a portion of the market collapsed in Canada, Bloomberg News reports.
Canada's largest bank wants to sell its asset-backed paper to U.S. money managers such as Fidelity Investments, the world's largest mutual-fund company, and State Street Corp., said Nur Khan, a managing director at RBC Capital Markets.
``The U.S. market is so much deeper, and there are so many more investors,'' Khan told BN in a phone interview from Toronto. Among Canadian buyers, ``if you look at an investor list from 12 months ago and an investor list today, there are fewer names.''
Investor appetite for the debt, which matures in less than a year, has dwindled in Canada after more than a quarter of the market froze in August on concerns about links to U.S. subprime mortgages. The size of the asset-backed commercial paper market plunged 40 % to C$70.3 billion ($69.4 billion) at the end of May, from almost C$120 billion last year, according to DBRS Ltd., a Toronto-based ratings firm.
The U.S. may not be an easy market to crack. The $748.4 billion asset-backed commercial paper market has dropped by 39 % from a peak of $1.22 trillion in August, according to the Federal Reserve, as losses from subprime mortgages led investors to shun all but the safest debt.
Royal Bank's paper is backed by Canadian assets such as credit-card receivables and is rated by four different ratings companies, Khan said. In addition, the elimination on Jan. 1 of a withholding tax on interest payments to foreign investors makes the debt more attractive for U.S. buyers, Khan said.
RBC Capital is in ``exploratory'' talks with potential investors and hasn't sold any paper, Khan said. State Street spokesman Steve Maguire declined to comment, as did Alexi Maravel, a spokesman for Fidelity in Boston.
Canada's non-bank commercial paper market has been frozen since August. About C$32 billion of the insolvent paper is being converted to new notes that mature within nine years. The notes may be issued by the end of this month if a court appeal of the so-called Montreal Accord restructuring plan fails.
Royal Bank's paper isn't the same as the frozen paper, which was sold by non-bank dealers such as Coventree Inc., and weren't backstopped by commercial banks.
