Canada Housing to offer bonds; CU sells preferreds; Southern Pacific Resources eyes bonds

By Cristal Cody

Prospect News, Nov. 16 - Activity in the high-grade and high-yield Canadian bond markets is expected to stay busy through the end of the year with sales planned from Canada Housing Trust on Wednesday and Southern Pacific Resources Corp. by December, sources said Tuesday.

In addition, Newalta Corp. is planning a C$125 million offering of seven-year senior notes, according to a market source.

Elsewhere, CU Inc. was back in the market on Tuesday with an offering of C$75 million of preferred stock a day after the company sold C$125 million of 40-year debentures.

Canadian government bonds rallied on weaker economic data, sending yields down on Tuesday. Statistics Canada said factory sales fell 0.6% to C$45.1 billion in September.

The yield on Canada's 10-year note fell to 3.077% from 3.12%. The two-year note yield dropped to 1.579% from 1.63%.

U.S. Treasuries rallied, and the yield on the 10-year Treasury note dropped to 2.83% after ending at 2.95% the previous day. The two-year note yield fell 3 bps to 0.5%.

"The market overdid on the down side," said Mary Ann Hurley, a fixed income trader for D.A. Davidson & Co. "You had 10s almost touching 3%."

Trading is expected to remain volatile.

The Federal Reserve purchased $5.42 billion of bonds on Tuesday as part of its quantitative easing program to stimulate the U.S. economy. The Fed has been in the bond market since Friday with purchases scheduled every day for the remainder of the week.

"The Fed has embarked on the QE program; whether you think it's going to work or not is immaterial," Hurley said. "The bottom line is the Fed is taking a lot of paper out of a certain sector of the Treasury market."

Canada Housing in demand

Canada Housing Trust is expected to sell C$3.5 billion in a two-tranche Canada Mortgage Bonds program deal (Aaa/AAA/AAA) on Wednesday, according to a source.

The offering includes C$1 billion floating-rate notes due March 15, 2016 talked at 12 bps over three-month CDOR and a reopening of 3.35% notes due Dec. 15, 2020 to add C$2.5 billion. The 10-year notes are talked at 33.5 bps over the Government of Canada 3.5% bonds due 2020.

The bookrunners are CIBC World Markets, National Bank Financial, RBC Capital Markets Corp. and TD Securities Inc.

Canada Housing Trust sells Canada Mortgage Bonds through the Canadian Mortgage and Housing Corp. and uses the proceeds to purchases mortgages from financial institutions.

Demand is expected to be high for the floating-rate notes, while the 10-year "reopening has largely been spoken for for a couple weeks now," a source said.

CU sells preferred stock

CU priced C$75 million, or 3 million shares, of 3.8% series 4 cumulative redeemable preferred stock at par of C$25.00 each, according to a statement.

BMO Capital Markets Corp., RBC Capital Markets Corp. and TD Securities Inc. were the lead underwriters.

CU may redeem the bonds on June 1, 2016 and on June 1 of every fifth year thereafter in whole or in part at par.

Proceeds will be used to purchase preferred shares to be issued by CU's operating subsidiaries, ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd. The subsidiaries will use the proceeds to fund a portion of their 2010 capital expenditure programs, to repay existing debt and for other general corporate purposes.

On Monday, CU sold 4.947% 40-year debentures due Nov. 18, 2050 at par, or a spread of 126 bps over the Government of Canada 5% 2037 benchmark bond on Monday, a source said.

Alberta-based CU is a subsidiary of Canadian Utilities Ltd.

Southern Pacific eyes bonds

Southern Pacific Resources expects to sell up to C$300 million of new high-yield debt by the end of the year, the company told Prospect News.

"We're in the process of raising some external debt," said Southern Pacific Resources chief financial officer Howard Bolinger. "The plan is we're putting it in place by December. We haven't finalized terms yet."

RBC Capital Markets, BMO Capital Markets, Credit Suisse Securities (Canada) Inc. and TD Securities Inc. are the bookrunners for the sale.

Proceeds will be used for the company's STP-McKay Thermal Project in northern Alberta.

Calgary, Alta.-based Southern Pacific Resources is a publicly traded oil and gas company.

Newalta marketing notes

Canada's Newalta is in the market with a C$125 million offering of seven-year senior notes, according to a market source.

CIBC World Markets is building the order book.

Proceeds will be used to refinance bank debt.

Moody's Investors Service assigned its B1 rating to the notes.

Newalta is a Calgary, Alta.-based industrial waste management and environmental services company.

Paul A. Harris contributed to this report

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