Scotiabank has priced $750 million in defence-labelled notes, two weeks after publishing the framework that governs them. The bank says it is the first defence-labelled issuance by any entity in the Canadian market.
Why it matters
Ottawa's Defence Industrial Strategy depends on private capital to expand domestic production. Until now, no Canadian issuer had tested whether institutional investors would buy debt explicitly tied to defence. The deal sets a first benchmark and a template other lenders can copy.
Driving the news
Scotiabank priced its 5NC4 Canadian Defence Notes on Sept. 21 and announced the deal Sept. 22. It is the first offering under the bank's Canadian Defence Issuance Framework, published Sept. 8 [LINK: Vanguard Sept. 8 framework story].
The bank intends to allocate an amount equal to the net proceeds to new or existing loans that meet the framework's eligibility rules.
The details
The notes run five years, callable by the bank after four. The release did not disclose the coupon, spread or size of the order book.
Proceeds are not ring-fenced. The cash goes into Scotiabank's general account, an equivalent amount is earmarked for a pool of eligible defence loans, and bondholders are repaid from general funds regardless of how those loans perform. The bank aims for full allocation within 24 months of issuance.
To qualify, borrowers must be headquartered in Canada or listed on a Canadian exchange. They must also show sector participation through an association such as CADSI or AIAC, a government supplier or procurement program, or direct involvement in eligible activities.
Core defence: aerospace, naval and maritime, land systems, ammunition and weapons, cyber and electronic systems, and space.
Defence-related: Arctic and other critical infrastructure, critical minerals and supply chains, AI, quantum and semiconductors, and civil security.
Threshold: where defence accounts for at least 50 per cent of a borrower's revenue, capital spending or cash flow, the full loan qualifies.
The framework excludes cluster munitions, anti-personnel mines, chemical and biological weapons, and blinding laser and incendiary weapons, including white phosphorus. Nuclear weapons and their dedicated delivery systems are kept out of the loan pool.
What they're saying
"We are proud to launch the first transaction under Scotiabank's Defence Issuance Framework, providing investors with an opportunity to participate in a labelled bond supporting Canada's defence capabilities, industrial base and long-term economic resilience," said Paul Scurfield, executive vice-president and global head, capital markets, Scotiabank.
"This transaction represents an important milestone in the development of Scotiabank's funding programs and demonstrates the role capital markets can play in supporting Canada's evolving defence and security priorities," said Brandon Konigsberg, executive vice-president and group treasurer, Scotiabank.
By the numbers
$750 million: size of the first issue
24 months: target to fully allocate proceeds
50 per cent: defence share of a borrower's business needed for full loan eligibility
Annual: allocation reporting and external review for as long as the notes are outstanding
The bigger picture
Canada's big banks are moving quickly to position themselves around defence. CIBC committed $2 billion this month to defence and dual-use small and mid-sized businesses, and National Bank brought on retired general Rick Hillier as a strategic defence adviser in August. RBC is advising Ontario on a $500-million resilience bond to fund defence projects, The Globe and Mail reported.
Scotiabank is also a founding partner bank of the Defence, Security and Resilience Bank Development Group. Sustainable Fitch assessed the framework and found it aligned with emerging defence financing market practices.
The framework states outright that the notes are not sustainable finance instruments under ICMA green or social bond principles. That separates defence paper from the ESG market rather than trying to fold it in.
What's next
Scotiabank will publish annual reports covering proceeds allocated, unallocated balances, a breakdown by sector and the share going to SMEs, on a best-efforts basis and subject to client confidentiality. Watch for pricing details, a second issue, and whether another Big Six bank publishes a competing framework.
