Canada trading quiet on half day; deal levels to pick up in July; Teck tightens 13-15 bps

By Cristal Cody

Prospect News, June 30 - The Canadian bond markets wound down quietly on Thursday as the markets closed early ahead of the full close on Friday for the long holiday weekend.

The U.S. bond markets will be closed on Monday and not much activity is expected in Canada until Tuesday, according to sources.

"It's relatively quiet," one informed source said. "Spreads provincial wise have tightened a half basis points on the day, 5s are still tighter from yesterday. But it's been quiet - no new issues - and secondary trading was relatively quiet."

The last half of June ended with a whimper in corporate primary activity in Canada as volatility soared around the Greek debt situation, but the calendar likely will pick up in July, sources say.

"Monday, the U.S. markets are closed for Independence Day; we figure it's going to be quiet in Canada as well," an informed bond source said. "We don't really expect anything on Monday and for things to pick back up on Tuesday. There are a number of corporate deals in the pipeline because there hasn't been any corporate issuance in the last two weeks, so we're looking for a bit of activity next week."

A steady trickle of deals in the provincial bond market over June also is expected to continue into July and August, with the summer months typically the least active, one provincial source noted.

Next week's deal levels will depend on market tone.

"If market tone allows them to come, we may see a few issuers tap the markets," a source said.

In the secondary market, Teck Resources Ltd.'s bonds sold in the U.S. market the previous day closed tighter by 13 basis points to 15 bps on the day, a trader said Thursday. "The rest of that space is 10 bps better, so they're outperforming."

Husky Injection Molding Systems Ltd.'s new PIK toggle notes priced in U.S dollars on Wednesday also rose in secondary trading, a source said Thursday.

Sino-Forest Corp. experienced light volume during the session but did weaken as its credit rating was downgraded. Muddy Waters Research founder Carson Block also reported in a television interview Thursday that he was continuing to short the company's common equity.

Canadian government bonds were lower on the day, with yields up across the curve. The 10-year note yield rose 3 bps to 3.11%. The 30-year bond yield edged up 1 bp to 3.54%.

Teck tightens

Teck Resources' new bonds narrowed in secondary trading on Thursday, a trader said.

The company sold $2 billion of senior notes (Baa2/BBB/BBB) in three tranches late on Wednesday in the U.S. high-grade bond market.

A $300 million tranche of 3.15% notes due 2017 priced to yield Treasuries plus 150 bps and firmed on Thursday to 141 bps bid, 138 bps offered.

A tranche of $700 million of 4.75% notes due 2022 sold at 165 bps over Treasuries narrowed 11 bps on the bid side to 154 bps bid, 151 bps offered.

The last tranche the company sold, $1 billion of 6.25% 30-year bonds priced a spread of Treasuries plus 190 bps, traded 10 bps tighter at 180 bps bid, 178 bps offered.

The diversified resource company for mining and mineral development is based in Vancouver, B.C.

Husky higher

Husky Injection Molding Systems priced $570 million of eight-year PIK toggle notes due 2019 at par to yield 10½% on Wednesday.

The notes traded higher on Thursday, seen at 100.125 bid, 100.625 offered, a trader said.

Husky will use the proceeds to help fund the leveraged buyout of parent company Husky International Ltd. by Berkshire Partners LLC and Omers Private Equity Inc. from Onex Corp.

Bolton, Ont.-based Husky is a supplier of injection molding equipment and services to the plastics package and product industry.

Sino-Forest slips

Sino-Forest's 6¼% notes due 2017 were "a touch lower," a trader said, on news of a downgrade by Standard & Poor's.

A Bloomberg Television interview with Muddy Waters Research founder Block might have also brought about the decline.

The trader said the notes ended around "46-ish."

Another trader said there was "a couple trades" in the paper, which he called down nearly a point at 461/4.

On Thursday, S&P dropped its rating on the Hong Kong- and Ontario-based timber products company to B+ from BB. The agency cited an inability of the company to collect cash from its offshore subsidiaries, as well as the allegations of fraud my Muddy Waters in early June.

In an interview with Bloomberg on Thursday, Block said that he was continuing to short Sino-Forest stock.

"I'm just as certain today that the company is a fraud and that the stock is a zero as I was on the day that we published," he said, referring to the June 2 report that claimed Sino-Forest had incorrectly stated its Chinese land holdings.

The company has repeatedly said it is free of any wrongdoing, but that hasn't stopped the bonds or stock from plummeting. Paulson & Co.'s divesture of its equity holdings on June 17 did little to improve investor confidence.

Catalyst Paper unaffected

A trader said that a rise in NewPage Corp.'s bonds after that company made a $100 million interest payment, as scheduled, had no impact on the bonds of NewPage sector peer Catalyst Paper Corp.'s bonds.

"Catalyst did not follow [NewPage] at all," he declared. "There was no reason for it to do so."

He saw the Richmond, B.C.-based papermaker's 11% senior secured notes due 2016 at 85 bid, 86 offered, while its 7 3/8% notes due 2014 were at 62 bid, 63½ offered, which he said was "maybe quoted up a point" - but he said there was only "small trade" in the name and "not much activity."

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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