Toronto-Dominion Bank Prices US$750 Million Non-Viability Contingent Capital Offering

The Toronto-Dominion Bank (TD) announced the pricing of a U.S. public offering totaling US$750 million of 6.350% Fixed Rate Reset Limited Recourse Capital Notes, Series 6 (Non-Viability Contingent Capital, or NVCC). This strategic issuance is designed to bolster the bank's regulatory capital, with proceeds earmarked for general corporate purposes, including potential redemption of outstanding capital securities and repayment of other liabilities. The offering is expected to close on September 23, 2025, pending customary closing conditions.

Details of the Capital Notes Issuance

The newly priced LRCNs will bear an initial annual interest rate of 6.350%, payable quarterly, for the period concluding on October 31, 2030. Following this initial term, the interest rate will reset every five years, calculated as the prevailing U.S. Treasury Rate plus a spread of 2.721%. The notes carry a long-term maturity date of October 31, 2085. Concurrently with the LRCNs, TD will issue 750,000 Non-Cumulative 6.350% Fixed Rate Reset Preferred Shares, Series 33. These preferred shares will be held by Computershare Trust Company of Canada as trustee for the TD LRCN Limited Recourse Trust™, establishing the recourse mechanism for LRCN holders. TD retains the option to redeem the LRCNs on October 31, 2030, and quarterly thereafter, subject to prior written approval from the Superintendent of Financial Institutions (Canada). The LRCNs will be registered with the U.S. Securities and Exchange Commission (SEC).

Regulatory Alignment and Capital Enhancement

This issuance underscores TD's ongoing commitment to strengthening its financial resilience and adhering to evolving banking regulations. The proceeds from this transaction are anticipated to qualify as Additional Tier 1 (AT1) capital for regulatory purposes. AT1 capital is a crucial component of a bank's capital structure, providing a buffer against potential losses and reinforcing stability. By issuing these NVCC instruments, TD enhances its capacity to withstand adverse economic conditions and supports future growth initiatives. While debt issuance can increase leverage, the nature of this instrument, specifically designed to meet regulatory capital requirements, is generally viewed as a positive move for financial stability. The 6.350% issuance rate will factor into TD's overall cost of capital.

Broader Market Context and Peer Comparisons

The market for Limited Recourse Capital Notes (LRCNs) has seen substantial growth, particularly among Canadian financial institutions seeking to optimize their capital structures and meet AT1 capital requirements. These hybrid instruments offer higher yields compared to traditional investment-grade bonds, appealing to investors in search of enhanced returns, albeit with increased risks related to lower capital priority and reduced liquidity.

Recent similar issuances by Canadian peers highlight this trend:

  • Royal Bank of Canada (RBC) announced a US$1.35 billion NVCC AT1 LRCNs, Series 7 offering with an initial annual interest rate of 6.50%.
  • CIBC priced C$450 million of 6.369% LRCNs Series 6 with an interest reset mechanism linked to the 5-year Government of Canada Yield.

The strong investor demand, as evidenced by oversubscribed offerings for similar instruments in the past, suggests a continued appetite for yield in the fixed-income market. TD's Common Equity Tier 1 Capital ratio stood at 14.9%, indicating a well-capitalized position even before this additional strengthening.

Looking Ahead

The successful pricing of these LRCNs positions TD with enhanced regulatory capital, which is critical in a fluid macroeconomic environment. The bank's ability to attract US$750 million at a fixed rate for the initial period demonstrates investor confidence in its stability and strategic direction. Going forward, market participants will monitor TD's capital ratios and overall financial performance, particularly how the cost of this new capital impacts its net interest margin and profitability. The focus remains on how such capital-strengthening moves will enable TD to pursue its general corporate purposes, including potential acquisitions or the redemption of existing liabilities, in the coming quarters.