AltaLink, Capital Power price ahead of holiday; Gateway Casino firms; junk bonds 'cheap'

By Cristal Cody

Prospect News, Nov. 9 - Canadian high-grade bonds firmed on Tuesday, while high-yield debt cheapened compared to U.S. names, sources said.

In the investment-grade market, Capital Power Income LP sold C$300 million of 10-year notes at par on Tuesday, a source said.

The 5.276% notes due November 2020 priced at a spread of 225 basis points over the Canadian government curve. The notes priced within talk of 225 bps over the curve.

The bookrunner was TD Securities Inc. Co-managers were RBC Capital Markets Corp., Bank of Montreal and National Bank Financial.

Capital Power LP is a subsidiary of Edmonton, Alta.-based energy producer Capital Power Corp.

Also, AltaLink, LP sold C$150 million of 30-year bonds on Tuesday, a source said.

The 4.872% bonds due Nov. 15, 2040 priced at par to yield 132 bps over the Canadian government benchmark. The bonds were talked in the area of 135 bps over the Government of Canada 5% benchmark bond due 2037.

"Appetite was pretty good. Everybody's always looking for 30-year paper," a source said.

The bookrunner was RBC Capital Markets Corp. Scotia Capital, National Bank Financial, Bank of Montreal and Casgrain & Co. Ltd. were the co-managers.

Calgary, Alta.-based AltaLink is Alberta's largest energy provider.

Secondary mixed

In the secondary market, AltaLink's bonds are "trading about 3 basis points better," a trader said late Tuesday. "It's actually doing pretty well off the break."

Corporate bond spreads in Canada "ended the day up a little bit tighter," a source said. "There still seems to be good secondary trading."

Canadian high-yield bonds were "slightly weaker" on the day, one source said.

"It's following the U.S. a bit and some catch-up because there's been a lot of supply and anticipation of supply."

Coming up over the rest of November, about $700 million to $900 million in new high-yield supply is expected, the source said.

But so far, the market was "pretty sleepy," the source said.

Canadian high-yield bonds continue "to be cheap" compared to U.S. high-yield debt across the spectrum of cross-border names, including Air Canada, Cascades, Iron Mountain, Videotron and Ford Credit, the source said.

At least two Canadian companies, including Precision Drilling Corp. and Calfrac Holdings LP, have deals "in the works" to price in the United States, a trader said.

"I suspect there will be something tomorrow, then quiet the balance of the week," the source said. "There's time to do another deal tomorrow."

The bond markets will close early on Wednesday and will close on Thursday for Remembrance Day.

Government bonds weaken

Canadian government bonds dropped on the day, sending yields up, following the trend in U.S. Treasuries.

The Canadian 10-year bond yield rose to 2.976% from 2.88%. The two-year note yield eased to 1.601% from 1.52%.

U.S. Treasuries fell, sending yields up, with the 30-year bond yield easing 13 bps to 4.25%. The yield on the benchmark 10-year note jumped 11 bps to 2.66%. The two-year note yield rose 4 bps to 0.44%.

In economic news, Statistics Canada said the New Housing Price Index increased 0.2% in September following a 0.1% increase in August.

On Wednesday, Canada will auction C$3 billion of bonds due 2012.

Gateway Casino stronger

In the Canadian high-yield bond market, the new debt due 2017 that Gateway Casino & Entertainment Ltd. sold on Friday firmed in secondary trading, a source said.

The new 8.875% senior secured second-lien note (B3/BB-/) priced to yield 660 bps over federal benchmarks.

Burnaby, B.C.-based Gateway sold C$170 million of the notes at par in a private placement.

"They're wrapped around 104," the source said. "Not much is trading."

Precision Drilling sets talk

Precision Drilling is expected to price its upsized 10-year senior note offering (Ba2/BB+) on Wednesday, according to an informed source.

The company upsized the deal to $650 million from $550 million on Tuesday.

The notes are talked with a 6 3/8% area yield.

The order books close at 10:30 a.m. ET on Wednesday. The deal is set to price at 12:30 p.m. ET.

Credit Suisse and RBC Capital Markets are the joint bookrunners for the notes, which are formatted according to the provisions of Rule 144A and are being sold with registration rights.

The notes come with five years of call protection.

Proceeds will be used to repay the company's term loan A and term loan B. The additional $100 million of anticipated note proceeds will be used for general corporate purposes.

The company shifted $100 million to the bonds from its revolver, reducing the size of the revolver to $550 million from $650 million.

Precision Drilling is a Calgary, Alta.-based provider of energy services to the oil and gas industry.

OPTI Canada

OPTI Canada Inc.'s short-dated debt rose in secondary trading, according to a source.

The 8.25% notes due 2014 were up 2.5 bps at 81.25.

The Calgary, Alta.-based company develops and operates major oil projects in Canada.

Paul A. Harris contributed to this report

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