Gateway up after pricing; Armtec down a point after earnings; Ontario sells C$600 million

By Rebecca Melvin

New York, Nov. 4 - Canada's bond markets Thursday were fairly buoyant in tandem with U.S. markets a day after the U.S. Federal Open Market Committee announced that it's initiating another round of quantitative easing in an effort to spark economic growth.

In corporate bonds, Gateway Casinos & Entertainment Ltd. priced its seven-year second-priority senior notes to yield 8.875%, and the paper opened up at around 102 and settled higher at about 103.5 bid, 104 offered in decent trading action, a Canadian sellside source said.

The new Gateway was well-received, and perhaps investors liked that the British Columbia-based gaming company is going to have to delever given covenants on its bank debt, the sellsider commented.

On the downside, Armtec Holdings Ltd.'s newish 8.875% senior unsecured notes due 2017, which priced in September, traded down about a point to 104 on softer earnings posted by the Guelph, Ont.-based maker and marketer of industrial infrastructure products.

In provincial financing, the Province of Ontario sold C$600 million in a reopening of its existing 2041 paper. The new paper was trading unchanged from issue at about 80, said David Deslauriers, TD Securities' managing director of government finance.

Meanwhile, Mercer International Inc. will start a roadshow during the Nov. 8 week for its $300 million offering of seven-year senior notes. But the Vancouver, B.C.-based pulp manufacturing company's deal is in U.S. dollars and won't be played in Canada, a sellside source said.

Overall, the Canadian market was described as "constructively better." Bond markets were up slightly but not as hot as they were in U.S. markets on Thursday, a market source said.

Government bonds strengthen

The Canadian government bond market extended gains, moving up Thursday in tandem with U.S. Treasuries, which were bid up by investors seeking to get in ahead of the U.S. central bank, which is planning $75 billion a month in purchases for the next eight months, as per its new quantitative easing program.

From five-years out, Canadian government bonds were stronger.

The yield on the Canadian 10-year bond fell to 2.81% on Thursday from about 2.90% at the end of Wednesday.

Gateway rises on debut

Gateway Casinos' new 8.875% bonds due 2017 ended the session at 103.5 bid, 104 offered, which was up from 102 upon pricing, which was toward the end of the day at about 3 p.m. ET.

The paper priced at the cheap end of coupon talk which was 8.875% to 9%.

The notes come with four years of call protection and a three-year 35% equity clawback.

Proceeds, along with cash on hand, will be used to fund the tender for the company's 9.25% senior notes due 2013.

Investors appeared to like the new Gateway despite the fact that there was concern regarding the fact that the bookrunners - including RBS Securities Inc., Jefferies & Co. Inc., J.P. Morgan Securities LLC, Goldman Sachs & Co. and Morgan Stanley & Co. Inc. - are non Canadian.

Some investors were upset because they want to know that there is going to be the desired level of liquidity in Canada, a Toronto-based sellside trader said.

Nevertheless, it was viewed as a "good bond," the trader said, because the Burnaby, B.C.-based gaming company has a bank facility with pretty aggressive covenants to preserve creditworthiness.

In addition, Gateway's business sector in gaming and casinos is seen as stable given that it is part of a duopoly in British Columbia and gaming is heavily regulated in Canada, limiting competition, the trader said.

"Effectively you get a pretty stable entity," he said.

Furthermore, Gateway, a C$100 million EBITDA company, has recently renovated its facilities and will have virtually no capital expenditures going forward.

"It has a lot of free cash flow, and it used to be a public company, so it is pretty well known," the trader said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.