Bank of Nova Scotia is set to become Canada’s first bank to sell a junior bond known as limited recourse capital notes in a currency other than loonies. 

Toronto-based Scotiabank is reaching out to U.S. dollar-based investors Monday before deciding to go ahead with the deal, according to people familiar with the matter, who asked not to be named discussing a private transaction. In June, the bank sold LRCNs in the Canadian dollar corporate bond market. 

Canadian banks have sold $15.8 billion (US$12.5 billion) of LRCNs since July 2020 when Office of the Superintendent of Financial Institutions deemed the securities eligible as Additional Tier 1 loss-absorbing buffers, according to data compiled by Bloomberg. Such transactions, which so far have been denominated in Canadian dollars, allow issuers tax deductions on interest payments -- thus reducing their all-in borrowing costs. 

Scotiabank’s $1.25 billion of 3.7 per cent notes due in 2081 with a call option in June 2026 are quoted at an equivalent spread of around 252 basis points over U.S Treasuries, according to Bloomberg data. The notes are rated by S&P Global Ratings and Moody’s Investor Service at their lowest investment grades.

A press officer for Scotiabank didn’t provide immediate comment on the potential deal.