Toronto-Dominion Bank, Ontario tap U.S. bond market; spreads firm on thin trading activity

By Cristal Cody

Prospect News, July 7 - Two Canadian issuers tapped the U.S. bond markets on Thursday, while primary activity in Canada remained bare.

In the U.S. high-grade market, Toronto-Dominion Bank sold $2.5 billion of senior medium-term notes (Aaa/AA-) in three parts Thursday, a source who worked on the trade said.

Also in the U.S. market, the Province of Ontario priced $1 billion of 3% seven-year bonds.

The provincial market has seen some deal activity in Canada over June but nothing so far in the first week of July.

"Yields in Canada and the U.S. are tracking relatively closely. The Canadian bond market has been a little quieter in recent weeks, it's true, but we think that may change in the months ahead," one provincial bond source said. "We saw a slowdown roughly around this time last year, as well, but that was in the wake of the initial European debt concerns."

Depending on the province, spreads are "slightly tighter" since the start of the year, the source said. "Investors are really sort of picking and choosing between the provinces, and we didn't see a clear-cut move in spreads over the first six months of the year."

Ontario's bonds were not seen trading immediately in the secondary market, while TD Bank's fixed-rate notes firmed going out.

High-yield markets in Canada traded a bit firmer on "thin volumes" and "very quiet" activity, an informed source said, noting the market was "probably an eighth to a quarter better today."

While primary activity ceased in mid-June, a handful of deals are expected between now and the end of summer, the source said. "We expect some supply."

High-yield bonds from Videotron Ltd. and Armtec Holdings Ltd. traded modestly better.

Nortel Networks Corp. remained the distressed go-to name. The bonds continued to trade actively and gained another 1 to 2 points during the session.

Government bonds were mixed on a private U.S. jobs report on Thursday ahead of government job data across both sides of the border on Friday. Canada's two-year note yield rose 4 basis points to 1.58%, while the 10-year note yield ended unchanged at 3.05%. The 30-year bond yield fell 2 bps to 3.49%.

"Seems like the market is much more upbeat on the U.S. jobs number because of the ADP report today, so we saw a sell-off in Canada and the U.S.," a bond source said.

TD Bank sells $2.5 billion

Toronto-Dominion Bank sold $2.5 billion of senior medium-term notes (Aaa/AA-) in three parts Thursday, a source who worked on the trade said.

The sale was initially in two parts, and a tranche of floating-rate notes was added.

"The company maxed out at $2.5 billion," the source said. "They had a preference toward the five-year [notes]."

There was a $500 million tranche of three-year floating-rate notes priced at par to yield three-month Libor plus 30 bps.

A $750 million tranche of 1.375% three-year fixed-rate notes priced at 99.769 to yield 1.454% with a spread of Treasuries plus 65 bps. They were sold at the tight end of guidance in the 70 bps area, plus or minus 5 bps, a source said.

The final part was $1.25 billion of 2.5% five-year notes priced at 99.627 to yield 2.58% with a spread of Treasuries plus 85 bps. These notes also sold at the tight end of talk in the 90 bps area, plus or minus 5 bps.

The deal as a whole was a blowout with about $9.5 billion total on the books, including $3 billion in the floaters, $2.5 billion in the three-year notes and $4 billion in the five-years.

TD Bank knew it wanted to tap the U.S. debt market for a while, but it wasn't until today that market conditions looked right, the source said.

"It's quite a pristine name, being AAA on one side" she said. "It was subject to a thoughtful process of marketing the deal."

Bookrunners were Goldman Sachs & Co., Citigroup Global Markets Inc., Morgan Stanley & Co., Inc. and TD Securities (USA) LLC.

Proceeds are being used for general corporate purposes.

In secondary trading, the fixed-rate notes due 2014 firmed to 63 bps offered and later to 62 bps bid, 57 bps offered, according to traders.

The tranche of notes due 2016 firmed to 83 bps bid and were seen going out at 82 bps bid.

The bank and financial services company is based in Toronto.

Ontario sells $1 billion

The Province of Ontario priced $1 billion of 3% seven-year bonds on Thursday to yield 53.8 bps over Treasuries, or mid-swaps plus 33 bps, according to an FWP filing with the Securities and Exchange Commission.

The bonds (Aa1/AA-) were priced at 99.931 to yield 3.011%. They are non-callable.

Bookrunners were CIBC World Markets, Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and UBS Securities LLC.

Proceeds are being used for general provincial purposes.

Videotron trades up

The last high-yield deal brought in Canada traded better on Thursday, an informed bond source said.

Videotron (Ba1/BB/) sold C$300 million 6 7/8% senior notes due July 15, 2021 at par on June 16. The notes traded up about ¼ point on Thursday to 100½ bid, 101 offered.

Videotron is the cable, internet and mobile phone subsidiary of Quebecor Media Inc.

Armtec active

Armtec's 8 7/8% senior notes due Sept. 22, 2017 "were better bid" in the secondary market on Thursday, a trader said. "They're in the mid-80s now."

The notes were quoted on Tuesday at 79 bid, 85 offered. Armtec priced C$150 million of the seven-year notes on Sept. 15, 2010 at par.

The bonds slowly are recovering some of the June losses after parent company Armtec Infrastructure Inc. reported lower first-quarter earnings, suspended the quarterly dividend and received downgraded credit ratings from Standard & Poor's and DBRS.

Armtec announced at the start of the week that it entered into a C$125 million credit facility with a Brookfield Asset Management Inc. unit. Brookfield will receive transaction warrants that will allow it to purchase 15% of Armtec.

Armtec is a Guelph, Ont.-based manufacturer and marketer of industrial infrastructure products and engineered construction solutions.

Nortel still popular

A trader said Nortel Networks was all the rage "once again," as investors continue to hope that recoveries would be higher - and would get paid faster.

A trader saw Nortel's 10¾% notes due 2016 up 3 points on the day at 108 7/8 bid, with $62 million traded - the most active issue in the Nortel capital structure and easily the busiest of any high-yield bonds. On Wednesday, $63 million of the bonds had changed hands, and the bonds had also gained more than 2 points.

He saw Nortel's 10 1/8% notes due 2013 up 3¼ points at 108¾ bid on volume of $50 million. That was on top of the $30 million which had traded on Wednesday, when the bonds were up 2 points.

The company's 6 7/8% notes due 2023 rose to 80 bid on Thursday, a gain of 3¾ points, with $11 million of turnover; on Wednesday, those bonds had gained almost 6 points on the session, on volume of better than $16 million.

The trader also saw Nortel's 7 7/8% bonds due 2026 up "a whopping 9½ points" to finish out at 102½ bid. However, he cautioned that only about $4 million of that particular credit has traded on Thursday.

With the company mired in a bankruptcy process, all of the Nortel bonds routinely trade flat, or without any accrued interest.

On Wednesday, the Toronto-based manufacturer of communications equipment announced that a court-ordered mediator had been appointed in its bankruptcy case, thereby causing many to believe that the drawn out case - Nortel filed for Chapter 11 protections in January 2009 - might soon be coming to a close.

A trader said that more than $200 million of Nortel Networks' bonds traded on Thursday, continuing the amazing surge, in very heavy trading, which the bankrupt Canadian communications technology company's bonds have seen since last week's auction of its portfolio of some 6,000 patents.

That auction, won by a consortium of five high-tech stalwarts - Apple, Inc., Microsoft Corp., EMC, Ericsson and RIM Ltd. - produced a winning bid of $4.5 billion, about three times what analysts had expected and five times the initial $900 million stalking-horse bid submitted by Google, Inc., which reportedly dropped out of the bidding process at $4 billion, leaving the field to its rival.

The winning bid, should it pass muster with the Canadian government and with the courts in Ontario and Delaware overseeing Nortel's liquidation process, will provide for a bigger potential recovery for bondholders and other creditors.

"The distressed guys are figuring out what the trade claim is and what each tranche is going to get back" when the complex process of divvying up the company's assets, including the proceeds from the patent sale, among the various classes of creditors, is completed, a trader theorized.

At another desk, a market source saw the 6 7/8s gain 4¾ points on the day to end at 79½ bid, on top of a 5 7/8-point advance on Wednesday. Nortel's 103/4s were seen up 1 7/8 points, at 108 7/8, building on Wednesday's 13/4-point rise, while the 10 1/8s improved by a deuce, the same as Wednesday's action, to reach the 108¾ mark.

Paul Deckelman, Andrea Heisinger and Stephanie N. Rotondo contributed to this review

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