Hydro One sells C$235 million 50-year notes; Canada Housing deal attracts foreign interest

By Cristal Cody

Prospect News, Aug. 13 - Canadian bond markets ended Monday with a new corporate offering from Hydro One Inc., while the provincial markets are expected to see some primary activity over the week, informed bond sources said.

Hydro One sold C$235 million in a reopening of its 50-year medium-term notes, which the electric utility first priced on July 26.

"The market itself is very quiet in terms of supply," a Canadian high-grade bond source said. "We did see one deal today. Other than some bank issuance, Hydro One was the last high-grade non-financial corporate [deal in the Canadian markets]."

Corporate deal activity is expected to stay fairly light through the typical summer month of August.

Meanwhile, Canada Housing Trust No. 1 is attracting the focus of provincial markets for the week with a forecasted C$3 billion to C$3.5 billion two-tranche Canada Mortgage Bond deal.

The offering is expected to have "good distribution, not just domestically, but outside Canada as well," a provincial syndicate source said.

"We tend to find that 30%-35% of CMB deals go offshore," the source said. "We might have more than that for the 10-year deal. Given the indication of interest we've had, there will be north of 50% of it going offshore."

Provincial deal activity has been light in August with one offering priced the previous week from the Province of Ontario. The province (Aa2/AA-/DBRS: AA) sold C$600 million in a reopening of its 3.5% bonds due June 2, 2043 on Wednesday.

"It's been very, very quiet," a bond source said. "The market is going to be focused tomorrow on Canada Housing Trust's launch. Depending on how that goes, we might get one or two provinces hoping to get something done on the back half of the week."

Ten-year terms likely will be the maturity focus for the new deals, the source said.

"We're seeing interest in that part of the curve now - 10s and 30s," the bond source said.

Provincial bond spreads traded going out on Monday about ½ of a basis point tighter across the maturity spectrum.

Corporate bonds ended Monday mostly unchanged, much how they traded in the latter half of the previous week.

The Markit CDX Series 18 North American investment-grade index ended the day flat at a spread of 103 basis points.

The Markit CDX Series 18 North American high-yield index fell to 97.83 from 98.98.

Canadian government bonds ended weaker across the curve. Canada's 10-year note yield rose 2 bps to 1.80%. The 30-year government bond yield closed 2 bps higher at 2.34%.

Hydro One reopens notes

In the Canadian offering on Monday, Hydro One sold C$235 million in a reopening of its 3.79% 50-year medium-term notes at 99.709 to yield 3.803%, an informed bond source said.

The notes due July 31, 2062 (A1/A+/DBRS: A) priced at a spread of 148 bps over the Government of Canada benchmark.

RBC Capital Markets Corp. was the bookrunner.

Co-managers were TD Securities Inc., BMO Capital Markets Corp., CIBC World Markets Inc., Scotia Capital Inc., Desjardins Securities Inc., HSBC Capital (Canada) Inc., Casgrain & Co. Ltd., Laurentian Bank Securities, Inc., Bank of America Merrill Lynch and National Bank Financial Inc.

The notes have a Canada call feature of 38 bps over the Government of Canada benchmark.

Hydro One initially sold the bonds in a C$75 million offering on July 26 at 99.978 to yield 3.791%, or a spread of 153 bps over the Government of Canada benchmark. The total outstanding is C$310 million.

Toronto-based Hydro One provides electricity in the Province of Ontario.

Canada Housing on tap

Later in the week, Canada Housing Trust No. 1 (Aaa/AAA/DBRS: AAA) is expected to price two tranches of mortgage bonds, an informed bond source said on Monday.

The offering will include an estimated C$2 billion to C$2.5 billion of new 10-year Canada Mortgage Bonds. Guidance on the bonds due Dec. 15, 2022 is expected in the high 50 bps range, the source said.

The second tranche will be a reopening of the trust's floating-rate notes due Sept. 15, 2017. The trust is expected to launch C$1 billion of the floaters, which currently trade in the area of 10 bps over the Canadian Dealer Offered Rate, the source said.

The trust initially sold C$2.5 billion of the five-year floating-rate notes on May 16 at par to yield 11 bps over the three-month CDOR.

The deal is expected to launch on Tuesday and price on Wednesday.

The trust is a unit of Canada Mortgage and Housing Corp., which provides financing, mortgage loan insurance, mortgage-backed securities and housing policy and programs.

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