Ontario, CU tap long bond markets; Athabasca deal eyed; BMO paper widens; TransAlta firms

By Cristal Cody

Prospect News, Nov. 8 - Deal action in Canada's bond market focused on the long end of the yield curve on Thursday with a $600 million reopening of bonds due 2043 by the Province of Ontario and a C$200 million offering of 40-year debentures by CU Inc.

CU's parent, Canadian Utilities Ltd., sold C$200 million in an offering of 3.122% 10-year debentures (/A/DBRS: A) at par on Tuesday.

Canadian National Railway Co. brought a U.S. dollar offering of $500 million of notes in two tranches on Wednesday.

In the U.S. junk bond market, New Gold Inc. sold $500 million of 10-year senior notes.

Calgary, Alta.-based based oil sands developer Athabasca Oil Corp.'s C$600 million high-yield offering of senior secured second-lien notes due 2017 remains on track to price on Friday, according to a bond source.

The notes (DBRS: B) were whispered to yield in the low 7% area.

A deal also is expected from Omers Realty Corp., which plans to sell C$420 million in two tranches of Centennial Place senior secured bonds (DBRS: A provisional), according to sources on Thursday.

The offering includes C$210 million of series A bonds due 2022 and C$210 million of series B bonds due 2017.

Corporates mostly widened a second day on Thursday.

The Markit CDX Series 18 North American investment-grade index eased 4 basis points to a spread of 104 bps.

The Markit CDX Series 18 North American high-yield index fell to 98.10 from 99.01.

In the secondary market, no activity was seen in Canadian National Railway's two-tranche offering, which may have priced too late for trading, according to sources.

In other trading, TransAlta Corp.'s new 4.5% 10-year senior notes sold a week ago firmed 3 bps on the day, a trader said.

Bank of Montreal's 2.55% 10-year senior notes, which priced as a part of a $2 billion two-tranche offering on Nov. 1, are more than 15 bps wider in trading, according to a source.

"Kind of a mixed bag," a bond source said. "It's been very, very quiet today - feels like a Friday or a holiday."

Canada's government bonds traded mostly higher. Canada's 10-year note yield fell 3 bps to 1.72%. The 30-year bond yield dropped to 2.31% from 2.34%.

In economic data, Canada's trade deficit narrowed to C$826 million in September from C$1.5 billion in August, Statistics Canada said.

The new housing price index rose 0.2% in September, Statistics Canada said in a separate report.

Ontario taps 3.5% bonds

The Province of Ontario (Aa2/AA-/DBRS: AA) sold C$600 million in a reopening of its 3.5% bonds due 2043 at 102.062 to yield 3.391% on Thursday, an informed source said.

The bonds due June 2, 2043 priced at a spread of 104 bps over the Government of Canada benchmark.

CIBC World Markets Inc. was the lead manager. Co-managers were BMO Capital Markets Corp., TD Securities Inc., National Bank Financial Inc., Scotia Capital Inc. and Merrill Lynch Canada Inc.

The province last reopened the issue on Sept. 27 with a C$600 million offering priced at 103.62 to yield 3.311%, or a spread of 97 bps over the Government of Canada benchmark.

The bonds originally were priced on Jan. 26, 2012 in a C$600 million offering at 99.187 to yield 3.543%, or 88 bps over the Government of Canada benchmark.

The total outstanding is C$6.45 billion.

CU sells 40-year debentures

CU priced C$200 million of 3.857% 40-year debentures at par on Thursday, according to a source close to the deal.

The debentures due Nov. 14, 2052 (/A/DBRS: A) priced at a spread of 150 bps over the Government of Canada benchmark.

RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities and Scotia Capital were the lead managers.

Proceeds will be used to finance capital expenditures, to repay existing debt and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.

CU was last in the market with a debenture offering on Sept. 5. The company sold C$700 million in two tranches of debentures due 2042 and debentures due 2062.

Calgary, Alta.-based CU, a subsidiary of Canadian Utilities, which is part of the ATCO Group of Cos., holds rate regulated utility operations.

Railway bonds price

In the U.S. market, Canadian National Railway sold $500 million of notes (A3/A-/) in tranches due 2022 and 2042, a source said.

The sale included $250 million of 2.25% 10-year notes priced at 99.867 to yield 2.265% with a spread of Treasuries plus 67 bps. There is a make-whole call at 12.5 bps over Treasuries until Aug. 15, 2022, with a par call after that date.

There was also $250 million of 3.5% 30-year bonds sold at 99.43 to yield 3.532% with a spread of Treasuries plus 77 bps. The tranche has a make-whole call at Treasuries plus 15 bps until May 15, 2042 and a par call after that date.

Bookrunners were Bank of America Merrill Lynch, RBC Capital Markets LLC and Wells Fargo Securities LLC.

Proceeds will be used for general corporate purposes, including redemption and refinancing of outstanding debt.

Canadian National was last in the U.S. bond market with a $700 million sale of notes in two parts on Nov. 7, 2011. The offering included a 2.85% 10-year note priced at 95 bps over Treasuries.

The railway transportation company is based in Montreal.

New Gold sells 10-year notes

New Gold priced a $500 million issue of 10-year senior notes (B2/BB-) at par to yield 6¼% on Thursday, according to a market source.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

JPMorgan and Scotia Capital were the joint bookrunners for the quick-to-market deal.

The Vancouver, B.C.-based gold producer plans to use the proceeds for general corporate purposes.

TransAlta better

TransAlta's 4.5% senior notes due Nov. 15, 2022 that priced in a dollar deal a week ago firmed 3 bps on the day to 307 bps bid, 297 bps offered, a trader said.

The company sold the $400 million of the notes (Baa3/BBB-/) on Nov. 2 at Treasuries plus 300 bps.

The electricity generation company is based in Calgary, Alta.

BMO weaker

Bank of Montreal's 2.55% senior notes due 2022, which priced at a spread of 85 bps over Treasuries, are wider at 102 bps bid, 97 bps offered, a trader said on Thursday.

Bank of Montreal sold $1 billion of the 10-year notes along with $1 billion of 0.8% senior notes due 2015 on Nov. 1.

The financial services company is based in Toronto and Montreal.

Andrea Heisinger and Paul A. Harris contributed to this review

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