Hydro One sells upsized C$250 million notes; new provincial sales eyed; OPTI Canada widens

By Cristal Cody

Prospect News, Jan. 14 - Hydro One Inc. sold an upsized C$250 million offering of notes early on Friday, and new offerings from other issuers in the week ahead are in the pipeline, sources said.

"Hydro-Quebec is rumored to be looking at the long end and the seven-year sector," a source said. "Nova Scotia also is [forecast to sell bonds] given budget season is in a couple months."

Hydro-Quebec is a government-owned corporation, which generates, transmits and distributes electricity in Quebec.

Canadian high-yield trading ended the week on a positive tone "as the overriding theme this week has been a general lack of high-yield product on the street," one source said.

In U.S. trading, debt from OPTI Canada and Catalyst Paper Corp. widened during Friday's session, traders said.

Canadian government bonds dropped slightly on Friday on a lack of economic data and trending Treasuries on softer U.S. data. The 10-year note yield rose to 3.267% from 3.26%. The two-year note yield rose to 1.783% from 1.78%.

"Today was a very slow data day in Canada," said Ian Pollick, portfolio strategist at TD Securities. "A strong earnings performance from JPMorgan threw risk appetite in the market, so we're seeing bond prices drift a little higher, but it's pretty negligible, up 1 to 2 basis points across the curve."

Statistics Canada said that new motor vehicle sales rose 0.3% in November to 135,823 units. Preliminary data indicates that the number of new car sales in December fell 5%.

Trading is expected to be light ahead of the Bank of Canada's decision on Tuesday on whether to change the overnight rate from 1%.

"We expect no change to the overnight rate and we don't think too many market participants are looking for a hike," Pollick said.

U.S. Treasuries were mixed on softer economic data, with the 10-year and longer-term bonds falling ahead of the three-day weekend.

The U.S. bond markets are closed on Monday in observance of Martin Luther King Jr. Day.

The two-year note yield fell 2 bps to 0.57%. The 10-year note yield rose 3 bps to 3.33%.

The Labor Department said the consumer price index rose 0.5% in December on higher food and energy prices. The University of Michigan consumer sentiment index fell to 72.7 in January from 74.5 in December, reflecting higher unemployment numbers.

Hydro One sells notes

In the only deal on Friday, Hydro One sold an upsized C$250 million in a reopening of its 2.95% medium-term notes due Sept. 11, 2015 at 99.581 to yield 3.047%, according to a source.

The notes (Aa3/A+/DBRS: A) were sold at a spread of 63 bps over the Government of Canada benchmark, or the tight end of initial guidance of 64 bps.

Scotia Capital Inc. and Bank of America Merrill Lynch were the joint lead managers.

The issue, originally sold on Sept. 13, 2010, now has a total outstanding of C$500 million.

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

OPTI gyrations continue

OPTI Canada debt continued to seesaw, this time losing ground during Friday's session, traders said.

One trader called the 8¼% notes due 2014 about 2 points softer at around 70.

"They've been bouncing between 70 and 72," he said.

Another trader also saw a 70 bid for the paper but deemed it down only 1 point. The 7 7/8% notes due 2014 meantime lost just over a point, he said, to close at 693/4.

A third trader said that OPTI Canada's bonds "went down and stayed down."

He saw the company's 7 7/8% notes due 2014 drop to as low as 68-69 and then tick back up to 70 bid, which was still between 1½ and 2 points below where they had traded on Thursday.

He saw a "decent amount of trading" in the Calgary, Alta.-based oil sands energy company's paper, later amending that to "a lot of volume."

He also saw its 8¼% notes due 2014 trading around that same 70'ish level, down 1½ points on "decent volume."

Earlier in the week, OPTI said production at its Long Lake joint venture oil sands project - Nexen Inc. is the partner, owning 65% - increased by 11% in December to 29,100 barrels per day. However, even with the gains, production was still well below its 72,000 barrels per day capacity.

In November, OPTI said its financial stability hinged on increasing capacity at Long Lake. Nexen estimated that production will average between 38,000 and 45,000 barrels per day in 2011.

Catalyst Paper slips

A trader said Catalyst Paper's 7 3/8% notes due 2014 "gave a little back" after the solid gains notched over the last few sessions by the Richmond, B.C.-based paper manufacturer. He saw the notes in an 83-84 context versus 84-85 on Thursday, estimating them off ½ point.

The trader said that the company's 11% senior secured notes due 2016 continued to hang in above par at 101½ bid, 102½ offered, which "we've seen in a couple of spots."

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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