New Capital Desjardins, Emera deals improve in aftermarket; Industrial Alliance also comes in

By Rebecca Melvin

New York, Dec. 8 - Canadian bonds saw another pair of corporate issues come to market on Thursday, continuing December's fairly healthy stream of new issuance, which totals $4.5 billion so far, according to a market source.

Capital Desjardins Inc. priced C$500 million of series 1 senior notes at par that will yield a fixed rate for 10 years followed by a floating rate for five years.

Capital Desjardins' fixed-rate spread was 296 basis points over the Government of Canada's treasuries curve, a market source said.

Emera Inc., an energy holding company based in Nova Scotia, brought $250 million of five-year bonds to the high-grade market. They priced at 99.958, or at a spread of 169.3 bps over the Government of Canada 2016 benchmark. The bonds tightened 2 to 3 bps in the aftermarket.

"Both traded reasonably well," a source said.

Industrial Alliance Insurance & Financial Services Inc., which tapped the Canadian high-grade bond markets on Wednesday with the sale of C$200 million subordinated debentures, also traded on Thursday and tightened as well.

Industrial Alliance came at a spread of 339.6 bps versus the benchmark. A debt capital markets specialist said the "spread came in. The market's a bit better, with very good follow-on buying."

He said the bonds are attractive to investors because they are subordinated debt of the operating company, which is structurally senior to the holding company.

Broadly speaking, however, the market was described as having a skittish or uneasy tone.

"It's not a stable platform [for bringing a bond]," the specialist said.

Government bonds rallied a third day across the curve. The 10-year note yield fell to 2.00% from 2.05%. The 30-year bond yield dropped 4 bps to 2.58%.

The Canada 10-year yield touched an all-time low of below 2% at one point during the session. It was "just under 1.98%, in fact," a bank economist said.

Good flows

Despite the volatility, issuers have been coming to the market "whenever they can" after a very slow September and October.

The thin summer-to-fall period was largely due to the fact that Canada's bank companies were near the end of their fiscal years and flows were constricted, a market source said.

But after that, there was demand at the right price, and C$6.5 billion of new corporate bonds priced in November, he said.

December has also been "reasonably active so far," he said, noting a shift in momentum on the part of bond investors during this time back to cash after having been dominated by levered investors.

"Cash investors are more prudent, and they are digging in on price, but issuers are coming in as things are reasonably cheap," he said.

With the market a little bit softer heading into year's end and amid uncertainties surrounding the financial crisis in Europe, "both of these deals were priced to sell," he said, referring to Emera and Capital Desjardins.

On the macro front, market players continue to focus on Europe. And while there was a little bit of optimism ahead of the E.U. summit, optimism was definitely waning as several members of the euro zone rejected Germany and France's proposal as undoable.

"It's treading water to a little weaker," a source said. "Typically, with these summits, there's a little bit of optimism going into it and a little bit of disappointment coming out the other end," he said.

Canada will release third-quarter labor figures on Friday.

Capital Desjardins prices

In the primary market on Thursday, Capital Desjardins priced C$500 million of series 1 bonds at par to yield 296 bps over the Government of Canada's benchmark and 290 bps over the extrapolated curve.

In trading in the aftermarket, the new paper came in 3 to 5 bps, sources said.

Desjardins was the lead underwriter of the deal with BMO Capital Markets and Scotia Capital Inc. also playing a role.

Emera prices

Emera priced C$250 million of five-year medium-term notes at 99.958 to yield 2.96%, or a spread of 169.3 bps over the Government of Canada 2016 benchmark, or 165 bps over the interpolated curve, according to a market source.

Scotia Capital was the lead manager, with CIBC World Markets Inc. as co-lead.

The energy holding company is based in Halifax, N.S.

"It has performed pretty well; it's in a basis point," a market source said.

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