TD Extendible Note | Investing | Discussion forum

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 ?

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

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:

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.

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

I have purchased a handful of these.

Dislike: liquidity

Like: yield pick-up

this was attractive enough for me

new today 5.8% s/a, 5.88% a