Fortis week's third utility deal; Quebec sells C$500 million; Cara roadshow gains interest

By Cristal Cody

Prospect News, Nov. 19 - Fortis BC sold a C$100 million offering of 40-year debentures (DBRS: A) in the third energy deal of the week, while the Province of Quebec added C$500 million in a reopening of its 4.5% 10-year notes on Friday, sources said.

In the Canadian high-yield market, the sale from Newalta Corp. was a "blowout," and Cara Operations Ltd. started a roadshow on Friday in Toronto for its C$200 million offering of five-year senior secured second-lien notes, according to sources.

Early Friday, Fortis BC sold C$100 million of 5% debentures due Nov. 24, 2050, a source said.

The electric utility priced the notes at 99.828 to yield 5.01%, or a spread of 135 basis points over the Government of Canada benchmark bond. The notes priced in line with earlier guidance of 135 bps over the benchmark.

RBC Capital Markets Corp. was the bookrunner.

Fortis BC, a subsidiary of Fortis Inc., is an electric utility that supplies customers in south central British Columbia.

"There's been a few long deals, especially in the utilities sector," said Jason Parker, head of fixed income and research at BMO Capital Markets Corp. in Toronto.

Enbridge Gas Distribution Inc. priced C$400 million in a two-part sale of medium-term notes (A/A-/) on Wednesday.

The company sold C$200 million 4.04% notes due Nov. 23, 2020 at 99.959 to yield 4.045%, or a spread of 94.2 bps over the Government of Canada benchmark. Enbridge Gas also sold C$200 million of 4.95% bonds due Nov. 22, 2050 at 99.792 to yield 4.962%, or a spread of 126 bps over the Government of Canada benchmark.

Calgary, Alta.-based Enbridge Gas owns Canada's largest natural gas distribution company.

On Monday, CU Inc. priced C$125 million of 4.947% debentures due Nov. 18, 2050 (DBRS: A) at par to yield 126 bps over the Government of Canada 5% 2037 benchmark bond.

CU, a subsidiary of Alberta-based Canadian Utilities Ltd., is a holding company whose principal operating subsidiaries are ATCO Electric and ATCO Gas and Pipelines Ltd.

"The market's getting a little saturated in that part of the curve," Parker said.

40-year paper emerges

In addition, 40-year deals are somewhat new to the Canadian market.

"Typically, the long end used to be just 30-year deals, but in the past few months, there's been a search for longer product. It started in the States and now in Canada, there's been a few 40-year deals," Parker said. "Prior to this year, I don't even remember a 40-year deal."

Speculation attributes the growth in longer bonds to pension funds and others that are encouraging fund managers to extend duration after the volatility in the credit crisis.

In secondary trading, Fortis' new bonds were flat, while CU's notes and Enbridge's debt were up 1 basis point to 2 bps.

Canadian bonds fell on Friday with no economic data to drive the market. The yield on the 10-year note rose to 3.143% from 3.13%. Canada's two-year note yield rose to 1.65% from 1.64%.

U.S. Treasuries turned positive on positioning ahead of the government's auctions in the week ahead. The 10-year benchmark Treasury note yield fell 2 bps to 2.87%. The two-year note yield rose 1 bp to 0.51%.

The Treasury Department will auction $35 billion of two-year notes on Monday, $35 billion of five-year notes on Tuesday and $29 billion of seven-year notes on Wednesday. The auctions will start a day early on Monday to accommodate the U.S. Thanksgiving Day holiday.

Quebec adds C$500 million

In the provincial market, the Province of Quebec added C$500 million in a reopening of its 4.5% 10-year notes on Friday, sources said.

The notes were priced at 104.573 to yield 3.943%, or a spread of 81 bps over the Canadian government benchmark.

The issue now has a total outstanding of C$4.5 billion.

National Bank Financial was the lead manager.

Capital Desjardin firms

Canadian bank paper in the high-grade market weakened in secondary trading, while paper from insurers came in 4 bps to 5 bps on Friday, a source said.

"Banks are 1 to 3 softer. Insurers and other financials are in a little bit, with insurers leading the charge," the source said.

Capital Desjardins Inc.'s new debt sold on Thursday tightened 1 bp in secondary trading on Friday.

Capital Desjardins sold C$700 million of 3.797% series H senior notes due Nov. 23, 2020 at par to yield 142.6 bps over the Government of Canada benchmark bond on Thursday, a source said.

Montreal-based Capital Desjardins is a subsidiary of the cooperative member-owned financial institution Federation des caisses Desjardins du Quebec.

Newalta deal a 'blowout'

In the Canadian high-yield market, the sale from Newalta was a "blowout deal," an informed source said Friday.

Newalta sold C$125 million 7.625% senior unsecured notes (B1/BB/) due Nov. 23, 2017 at par to yield 496.9 bps versus the Government of Canada benchmark bond on Thursday.

The sale had allocations of 5% to 10%. The bond traded up to 103.5, 104.5.

The "book was much bigger and deeper than was predicted," the source said.

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

Valeant flat

A trader said that the new Valeant Pharmaceuticals International 6 7/8% notes due 2018 "went nowhere," quoting the bonds at 99 bid, 99 offered.

The Mississauga, Ont.-based drug maker's quickly shopped $1 billion offering - upsized from the originally announced $700 million - had priced late Thursday at 99.24 to yield 7% but came too late for any aftermarket that session.

A second trader said that the issue was "a little lower" on the day at 99 bid, 99 1/8 offered.

OPTI takes another hit

Elsewhere on Friday, OPTI Canada saw its bonds falling "down another 2 [points]," according to a trader.

He placed the 8¼% notes due 2014 at 71 and the 7 7/8% notes due 2014 at 70.

"They could be heading toward the abyss," he said.

Another trader also placed the 7 7/8% notes around the 70 level, on about $15 million to $20 million traded.

The Calgary, Alta.-based oilsands producer had gotten beat up on Thursday, just one day after the company presented at Bank of America Merrill Lynch's credit conference in New York on Wednesday.

The company and its project partner - Nexen Inc., who presented on Tuesday - warned that production at its Long Lake project would be weaker than previously expected. Though OPTI recently was able to raise money in a debt financing, giving it more liquidity in the near term, it also said that its profitability depended largely on the Long Lake project.

Another trader said OPTI Canada's bonds "got hit pretty good again today," continuing to be hurt by the announcement.

He estimated OPTI Canada's bonds - which have been on the slide this week - to be down around another 2 to 3 points on Friday, with the senior notes due 2014 at 71 bid, versus 73 late Thursday, 75 bid, 76 offered on Thursday morning and 76 bid before the Nexen's announcement.

"They're down about 5 or 6 points in the last couple of days," he said.

A second trader saw the 81/4s at 70¼ bid, 71¼ offered and saw the company's 7 7/8% second-lien senior secured notes due 2014 likewise lower at 70 bid, 71 offered.

"The bonds continued to drift down," said yet another trader, who mentioned OPTI Canada at the top of his list of notable market moves Friday. He quoted the bonds at 70 bid, 71 offered.

"People are checking me left and right on that one," he said.

Interest grows in Cara sale

Looking ahead to new high-yield sales, Cara Operations started the roadshow for its C$200 million offering of five-year senior secured second-lien notes, according to informed sources.

There are "multiple expressions of interest already in the transaction," one source said.

The deal, which is being shopped by Scotia Capital, will be shown again on Monday in Toronto, and on Tuesday in Vancouver, B.C.

The notes come with two years of call protection.

Proceeds from the sale of the notes will be used to reduce bank debt.

Cara Operations is the largest full-service restaurant operator in Canada. The company is based in Vaughan, Ont.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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