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TD Extendible Note
December 30, 2022
6:40 am
hwyc
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Since I signed up for TDDI new issue notifications, I got email on this kind of investment products.

TD Direct Investing would like to inform you that the following New Issue has just been announced.

TD Bank Semi-Annual Pay Step Up Extendible Notes January 11, 2024 to January 11, 2028

Short Description: Offering of Extendible (at Issuer's Option) Notes

Maturity: January 11, 2024
Coupon: Year 1: 5.20%
Year 2: 5.30%
Year 3: 5.40%
Year 4: 5.60%
Year 5: 5.80%
Rates per annum, payable semi-annually in arrears(equal payments)
Price: $100.00 CND per $100 par value.
Yield to Maturity: 5.44% semi-annual; 5.51% annual
Settlement: January 11, 2023

... newbie to these
... think I will make a placement request in TFSA to learn how they work

December 30, 2022
7:37 am
savemoresaveoften
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hwyc said
Since I signed up for TDDI new issue notifications, I got email on this kind of investment products.

TD Direct Investing would like to inform you that the following New Issue has just been announced.

TD Bank Semi-Annual Pay Step Up Extendible Notes January 11, 2024 to January 11, 2028

Short Description: Offering of Extendible (at Issuer's Option) Notes

Maturity: January 11, 2024
Coupon: Year 1: 5.20%
Year 2: 5.30%
Year 3: 5.40%
Year 4: 5.60%
Year 5: 5.80%
Rates per annum, payable semi-annually in arrears(equal payments)
Price: $100.00 CND per $100 par value.
Yield to Maturity: 5.44% semi-annual; 5.51% annual
Settlement: January 11, 2023

... newbie to these
... think I will make a placement request in TFSA to learn how they work  

step up at buyer's discretion ? So a free option essentially ?

December 30, 2022
8:05 am
Doug
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Since it's not been explicitly stated, it should be noted these are principle protected notes (PPNs). The Toronto-Dominion Bank, as issuer of the notes, guarantees the principle. TD Bank is, of course, a creditworthy issuer equal to, if not better than, the Government of Canada. Nonetheless, they are not instruments insured by CDIC.

More details: https://digital.tdwealthmedia.com/wp-content/uploads/2019/01/TD-Extendible-Step-Up-Notes.pdf

Term sheet: https://portal.tdsecurities.com/notes/detail/10914

There's a sales commission, which, presumably, is an upfront load, of 0.5%, which works out to be $5.00 per $1,000 of note principal. That may not be worth it, to be honest. You'd likely be better off buying a TD Bank bond/debenture. Unless it's an issuer-paid sales commission, which it may well be. Unsure if these are sold through any broker, or just TD Direct Investing.

Though it's extremely unlikely, this forum has discussed the concept of bail-in instruments in the past. These notes are bail-in eligible, meaning if required under the CDIC Act, they could could be converted to some other form of regulatory capital, such as TD common shares.

Cheers,
Doug

December 30, 2022
8:20 am
Doug
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savemoresaveoften said

step up at buyer's discretion ? So a free option essentially ?  

No, it's at the issuer's discretion. Basically, it has a 1-year term, but the issuer (TD) can opt to extend the note out on the Initial Maturity Date (1-year) and every year thereafter, up to the Final Maturity Date, such that it becomes a 5-year note. The prescribed annual interest rates are posted in the term sheet. 5.2% in the first year up to 5.8% in the fifth year, should it get there (although it likely would).

Cheers,
Doug

December 30, 2022
9:16 am
hwyc
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I made a placement request today. It was rejected ... probably due to insufficient cash balance ... picked up product info & prospectus along the cycle

  • Both the principal and interest are guaranteed by the issuer if held to maturity.
  • Maturity dates typically range from 1 to 15 years.
  • Minimum investment of $1,000, and in increments of $1,000.
  • Extendible step-up notes are generally eligible for RRSPs, RRIFs, RESPs, RDSPs, DPSPs and TFSAs.
  • The notes are not insured by the Canada Deposit Insurance Corporation (CDIC).
  • Canadian and U.S. dollar denominated extendible step-up notes are
  • available.

December 30, 2022
9:59 am
Norman1
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The maturity of the notes can be extended by TD every six months. Those coupon yields are only the yield during that year. Overall yield is not that much higher than a regular GIC:

Maturity Date Term
(yrs)
Yield
(s/a)
January 11, 2024 1.0 5.20%
July 11, 2024 1.5 5.23%
January 11, 2025 2.0 5.25%
July 11, 2025 2.5 5.28%
January 11, 2026 3.0 5.30%
July 11, 2026 3.5 5.34%
January 11, 2027 4.0 5.37%
July 11, 2027 4.5 5.41%
January 11, 2028 5.0 5.44%

TD isn't going to extend the maturity all the way out to five years if interest rates drop.

Maturity: January 11, 2024
Coupon: Year 1: 5.20%
Year 2: 5.30%
Year 3: 5.40%
Year 4: 5.60%
Year 5: 5.80%

For example, at the start of Year 3, the coupon rates will be 5.4%, 5.6%, and 5.8% for the next three years. What are the chances three-year GIC's will be 5.4%+ then?

If they are not, then TD will not extended the notes and replace the funds with three-year GIC's.

January 1, 2023
2:33 pm
hwyc
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I know these notes are not CDIC insured. I don't know what this text means and the role of CDIC mentioned here? In the case of a failure, I thought debtors come in front of shareholders.

The Notes are bail-inable notes subject to conversion in whole or in part - by means of a transaction or series of transactions and in one or more steps - into common shares of TD or any of its affiliates under subsection 39.2(2.3) of the CDIC Act and to variation or extinguishment in consequence, and subject to the application of the laws of the Province of Ontario and the federal laws of Canada applicable therein in respect of the operation of the CDIC Act with respect to the Notes.

January 1, 2023
5:13 pm
Doug
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hwyc said
I know these notes are not CDIC insured. I don't know what this text means and the role of CDIC mentioned here? In the case of a failure, I thought debtors come in front of shareholders.

The Notes are bail-inable notes subject to conversion in whole or in part - by means of a transaction or series of transactions and in one or more steps - into common shares of TD or any of its affiliates under subsection 39.2(2.3) of the CDIC Act and to variation or extinguishment in consequence, and subject to the application of the laws of the Province of Ontario and the federal laws of Canada applicable therein in respect of the operation of the CDIC Act with respect to the Notes.

  

I posted an answer to at post # 3. That is an example of the new-ish bail-in regime. In the event the deposit regulator required to The Toronto-Dominion Bank to recapitalize itself, in accordance with the CDIC Act, any bail-in eligible instruments (generally speaking, non-viable preferred shares, notes, debentures, bonds, etc.) could be converted to TD common shares. TD is a well capitalized bank, so it's highly unlikely that would happen anyway. If TD had to raise Tier 1 capital, they'd most likely (a) freeze their dividend rates allowing them to retain a greater share of earnings on their balance sheet, (b) sell shares the bank holds in treasury, (c) issue new shares, (d) offer to convert existing preferred shares to common shares, or some other similar option, before something like this would be required.

Debtors do come in front of shareholders, yes, but the common shares are considered Tier 1 capital because it is risk capital. Banks also hold deposits, which are a liability, and regulators have to monitor how much leverage and liability they have.

Cheers,
Doug

January 1, 2023
5:25 pm
savemoresaveoften
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Doug said

No, it's at the issuer's discretion. Basically, it has a 1-year term, but the issuer (TD) can opt to extend the note out on the Initial Maturity Date (1-year) and every year thereafter, up to the Final Maturity Date, such that it becomes a 5-year note. The prescribed annual interest rates are posted in the term sheet. 5.2% in the first year up to 5.8% in the fifth year, should it get there (although it likely would).

Cheers,
Doug  

OIC. Basically. The yield pickup is non existent compared to what some CUs are payable for 1y and 5 year GIC respectively. No point giving TD a free yearly interest rate cap option then.

January 1, 2023
8:51 pm
hwyc
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@Doug - I missed that in post #3 sf-frown

Yes. A few hits come up when I did word search for "bail" here.

January 10, 2023
6:54 am
hwyc
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My transaction posted with confirmation from TDDI today.
Trade date - Jan 9; Settle date - Jan 11

My notes for those interested
- TDDI rejected my initial placement (thinking I won't need the cash in my balance until the trade date) in my TFSA account back in Dec.
- 2nd placement got accepted after I deposit cash after new year
- initially I thought I won't see activity before settlement (Jan 11) but turned out it is posted and withdrawn 2 days ahead.
- As per prospectus, Principle Amount is C$100 per Note; Selling Agents Commission is C$0.50 per Note ... however, to my delight, no commission is charged to my transaction for this new issue.

Hope this helps

January 10, 2023
7:29 am
hwyc
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... Not sure we have enough interest in this kind of fixed income investment(s).

Just saw another new issue in USD - TD Bank Semi-Annual Pay Step Up Extendible Notes January 19, 2024 to January 19, 2025 (Year 1 - 5.14%, Year 2 - 5.14%)

Screenshot-2023-01-10-at-10-33-47-WebBroker-New-Issues.png

... That's it. I showed you where to look.

January 11, 2023
8:06 am
RetirEd
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hwyc: "Principal" is the initial amount in a financial transaction, such as an amount loaned or borrowed; it can also mean "main" or denote a person in a position of power. "Principle" is an abstract concept.
RetirEd

RetirEd

March 8, 2023
4:34 am
kesa
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I have purchased a handful of these.

Dislike: liquidity

Like: yield pick-up

March 8, 2023
4:58 am
savemoresaveoften
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Isn’t it better to just buy a 1y GIC at 5-5.2% ? There is really no benefits to buy these step up notes at all.

March 8, 2023
5:37 am
kesa
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this was attractive enough for meScreenshot-2023-03-08-at-8.35.54-AM.png

March 8, 2023
6:00 am
savemoresaveoften
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kesa said
this was attractive enough for meScreenshot-2023-03-08-at-8.35.54-AM.png  

this one a lot more attractive

March 8, 2023
6:23 am
hwyc
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savemoresaveoften said
Isn’t it better to just buy a 1y GIC at 5-5.2% ? There is really no benefits to buy these step up notes at all.  

Ouch that hurts. No benefits to buy, you say ? The fact is I already said I bought it in post #11. You make a lot of posts on this site ( thought I saw you on another site as well ), could we be less subjective and fact-based in our postings ?

... regarding post #19, I have nothing more to say sf-frown

March 8, 2023
6:44 am
savemoresaveoften
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hwyc said

Ouch that hurts. No benefits to buy, you say ? The fact is I already said I bought it in post #11. You make a lot of posts on this site ( thought I saw you on another site as well ), could we be less subjective and fact-based in our postings ?  

My comments are based on facts only, not personal or hidden agenda.

If rates go up a lot, you dont benefit much from it as TD will just extend the note. All you gain is an extra 10-20bps per year, regardless of how high BoC takes interest rate to.
If rates drop a lot, TD will just call the note. Your reinvestment risk is no different from having a 1y GIC etc.

Maybe you can explain why there are benefits based on facts that I am not aware of.

March 8, 2023
8:33 am
kesa
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new today 5.8% s/a, 5.88% aScreenshot-2023-03-08-at-11.32.06-AM.png

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