Algoma Power in market; Canada Housing to sell mortgage bond add-on; Connacher bonds fall

By Cristal Cody

Prospect News, Dec. 13 - Algoma Power Inc. tapped the Canadian bond markets in its inaugural issue on Tuesday, while investors also prepared for the C$5.5 billion offering of Canada Mortgage Bonds from Canada Housing Trust launched on Tuesday, sources said.

The markets mostly were quiet on Tuesday as the focus stays on Europe's financial crisis and primary activity is limited through the rest of the year, sources said.

"Everything's pretty much contingent on Europe," a bond source said. "This week is the last window for anything until next year."

Some financial transactions are not out of the question after next week, one source said.

"Last year, we did see a couple private placements being priced over the year-end," the source said. "But we see very light activity, especially in the new issue front, for the rest of the year."

The main deal for the week is Canada Housing Trust's reopening of 1.85% Canada Mortgage Bonds due Dec. 15, 2016 on Wednesday.

The mortgage bond offering "will be the liquidity driver at the year-end," a bond source said. "When this is priced, liquidity dries up drastically after that."

Elsewhere in Canada's bond markets, Connacher Oil & Gas Ltd.'s high-yield notes dropped about 5 points in trading on Tuesday after the company said it rejected a takeover offer.

Corporate bonds were flat to weaker on the day. The Markit CDX Series 17 North American high-grade index eased 1 basis point to a spread of 127 bps.

Canadian government bonds stayed stronger after the U.S. Federal Reserve took no monetary policy action. The 10-year note yield fell to 1.97% from 2.02%. The 30-year bond yield dropped to 2.56% from 2.62%.

Algoma Power taps market

Algoma Power came with an offering of C$52 million of 30-year senior notes on Tuesday.

The notes due Dec. 16, 2041 priced at par to yield 5.118%, or a spread of 250 bps over the Government of Canada benchmark, a source said.

The bonds are redeemable at the Canadian government benchmark plus 50 bps.

CIBC World Markets Inc. was the bookrunner.

Proceeds will be used to refinance intercompany debt related to FortisOntario Inc.'s acquisition of Algoma and for general corporate purposes.

Algoma Power is a Sault Ste. Marie, Ont.-based electric utility and subsidiary of FortisOntario Inc.

Canada Housing launches

Coming up on Tuesday, Canada Housing Trust (Aaa/AAA/DBRS: AAA) is expected to sell C$5.5 billion in a reopening of the 1.85% Canada Mortgage Bonds due Dec. 15, 2016.

The deal was launched on Tuesday in the 36 bps area, an informed bond source said.

CIBC World Markets, BMO Capital Markets Corp., RBC Capital Markets Corp. and TD Securities Inc. are the lead managers.

Co-managers include Merrill Lynch Canada Inc., National Bank Financial Inc., Scotia Capital Inc., Desjardins Securities Inc., HSBC Capital (Canada) Inc., Casgrain & Co. Ltd. and Laurentian Bank Securities, Inc.

The issue first priced on Sept. 20 in a C$5 billion offering at 99.867 to yield 1.877%, or a spread of 44 bps over the Government of Canada benchmark.

Canada Housing Trust is a unit of Canada Mortgage and Housing Corp., which offers financing, mortgage loan insurance and mortgage-backed securities.

Connacher notes fall

In Canada's secondary market, Connacher Oil & Gas' Canadian-dollar 8¾% notes due 2018 traded at 89 bid, 91 offered going out Tuesday afternoon, a trader said.

The Calgary, Alta.-based crude oil and natural gas company's notes were quoted up in Friday's trading at 94 bid, 96 offered from the low 80s on news of a takeover bid by an unnamed party.

Connacher said on Tuesday the proposal was "not compelling" and it will pursue its previously announced business plans.

The company sold C$350 million of the 8¾% seven-year notes at par on May 20, 2011.

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