Outlook 2012: Canadian bond deals notable for size, maturity, structure; Cara deal oft cited

By Cristal Cody

Prospect News, Dec. 30 - Several factors made a few deals in the Canadian investment-grade and high-yield markets over 2011 notable, ranging from the size to the maturity or in one case, to falling apart after it had priced.

The high-yield deal that stood out for several bond sources across Canada's investment-grade and high-yield markets was Cara Operations Ltd.'s sale of debt subscription receipts due Dec. 1, 2015.

"That's worthy of note - the deal that got placed and then never happened," one source said. "The deal looked pretty attractive for the M&A side."

Vaughan, Ont.-based Cara, Canada's largest full-service restaurant operator, had offered to buy Prime Restaurants Inc. in a transaction valued at C$59 million.

On Nov. 8, Cara (/BB-/DBRS: B) sold C$76 million of 9 1/8% debt subscription receipts due Dec. 1, 2015 to fund the acquisition.

But after the pricing, rival Fairfax Financial Holdings Ltd. submitted a C$71 million competing offer for Prime Restaurants and Cara opted not to match it. Receipt holders instead were refunded.

Cara's deal also highlighted a new Canadian trend for more structured deals in high-yield and high-grade markets, another source said.

"That deal was interesting, and there had been a lot of structure in there," the bond source said of Cara's sale. "We do lag behind the U.S. market in structures, but as those structures get imported from the U.S., the Canada market moves toward the U.S. standard. In Canada, all the terms are very standard, especially in investment-grade."

Oil and Gas a focus

Canada's high-yield deals also were notable for the number of oil and gas offerings, a source said. Out of the 21 high-yield offerings in 2011, eight were from oil and gas issuers.

"Oil and gas this year was a big focus," the source said.

Precision Drilling Corp.'s offering of C$200 million of senior notes due 2019 (Ba2/BB+/) was cited as notable for its low coupon. The Calgary, Alta.-based equipment and services provider for the oil and gas industry priced the notes at par to yield 6½% on March 10.

The pricing, at a "6½% coupon for eight years was probably the lowest," the source said.

In Canada's investment-grade market, Rogers Communications Inc. was cited by syndicate sources just for the sheer deal size.

The Toronto-based communications company sold C$1.85 billion in two tranches of senior notes (Baa2/BBB/DBRS: BBB) on March 8.

"The credit was very well bid at that point and they were able to take advantage of that," one source said.

Montreal-based Bell Canada (Baa1/BBB+/DBRS: A) came in a close second for deal size in the space with a C$1 billion offering of medium-term debentures sold in two tranches on May 16.

"Bell Canada was topical and that did really well in the sector," the source said.

Canada's maple bond market also made a return in the early part of 2011, led by financial issuers.

Goldman Sachs Group, Inc. (A1/A/DBRS: A) sold C$500 million of 5% senior maple bonds due May 3, 2018 on April 26.

"It shows just how strong the market was for a credit that everybody agrees has a little more risk than corporates," a bond source said.

Influx of covered bonds

Financial deals also stood out in another way over 2011.

"U.S. pricing for Canadian banks became very competitive," a syndicate source said. "Historically, they haven't been that competitive and Canadian banks took advantage of that. Every bank that could issued covered bonds in the U.S."

Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada were among the Canadian financial institutions that sold paper in the U.S. high-grade market in 2011.

Looking back over the year, Toronto-based insurance provider Intact Financial Corp.'s long-dated deal on June 30 was cited by a syndicate source because of the rare maturity.

The company sold C$100 million of 6.2% term notes due 2061.

The deal was "driven by reverse inquiries," the source said. "There are definitely these investors looking for long money."

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