Activity heats up with Financement-Quebec, Bank of Montreal deals; Canada keeps 1% rate

By Cristal Cody

Prospect News, Jan. 18 - Financement-Quebec and the Bank of Montreal brought deals in the Canadian and U.S. bond markets on Tuesday, a day after RioCan Real Estate Investment Trust and First Capital Realty Inc. sold debentures.

The primary calendar for high-grade, provincial and high-yield markets is expected to pick up for the week and the remainder of the month, according to sources.

On Tuesday, Canada's government bonds ended mixed after the Bank of Canada left its overnight rate unchanged at 1%, as widely expected by market observers and participants.

The Canadian 10-year note yield rose to 3.272% from 3.26%. The two-year note yield fell to 1.771% from 1.79%.

Financement-Quebec prices

In the largest sale in the Canada market on Tuesday, Financement-Quebec (Aa2/A+/DBRS: A) priced C$600 million 3.5% notes due Dec. 1, 2017 at 99.43 to yield 3.594%, an informed source said.

The notes priced at a spread of 71 basis points over the Government of Canada benchmark.

National Bank Financial Inc., BMO Capital Markets Corp. and RBC Capital Markets Corp. were the lead managers.

The issuer's debt is guaranteed by the Province of Quebec. Financement-Quebec is a Quebec provincial agency that provides financial services to public institutions, including health care, school boards, community colleges and universities.

The agency's previous bond sale was C$500 million of 3.5% notes due Dec. 1, 2016 on Aug. 23, 2010, which priced at 73 bps over the Canadian government benchmark.

Bank of Montreal sells paper

Across the border, the Bank of Montreal sold a benchmark $1.5 billion of 2.625% five-year covered bonds late on Tuesday under Rule 144A in the U.S. market, according to sources.

The bonds (Aaa/AAA/AAA) were priced at 99.935 to yield 2.639% with a spread of mid-swaps plus 47 bps, or Treasuries plus 69.7 bps. This was equal to price talk was in the mid-swaps plus 47 bps area.

The notes are non-callable.

Bank of America Merrill Lynch, Barclays Capital Inc., BMO Capital Markets and J.P. Morgan Securities LLC were the bookrunners.

The bonds are backed by the Canada Mortgage & Housing Corp.

The financial services company is based in Toronto.

RioCan REIT taps market

While the U.S. markets were closed on Monday, RioCan Real Estate Investment Trust found buyers in the Canadian market on Monday with two sales of debentures and preferred trust units.

The trust priced C$225 million in an upsized sale of 4.499% series O senior debentures due Jan. 21, 2016 at 100.075 to yield 4.482%, according to sources.

The notes priced in line with guidance at a spread of 192.9 bps over the Government of Canada benchmark.

In secondary trading, RioCan REIT's notes firmed 12 bps, a source said.

The deal was upsized from C$175 million.

RBC Capital Markets Corp., CIBC World Markets Inc. and TD Securities Inc. were the lead managers.

RioCan REIT also sold C$100 million 5.25% series A cumulative rate five-year reset preferred trust units on Monday, according to sources.

The 4 million units (/P-3/DBRS: Pfd-3) were sold at C$25.00 each.

The distribution rate will be reset on March 31, 2016 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 262 bps.

RBC Capital Markets Corp., Macquarie Capital Markets Canada Ltd. and Scotia Capital Inc. were the lead managers. The underwriters have an over-allotment option to purchase up to 1 million additional units at the same offering price within 30 days of closing.

A portion of the proceeds will be used to redeem C$180 million of 8.33% series L senior debentures due April 3, 2014 and the balance for general trust purposes.

The Toronto-based closed-end trust is Canada's largest real estate investment trust focused on shopping centers.

First Capital Realty upsizes

As one market source noted, the success of RioCan's sale may have helped encourage First Capital Realty, which sold C$150 million of 5.48% series L debentures due July 30, 2019 on Monday.

The sale was upsized by C$25 million.

The notes (Baa3//DBRS: BBB) have a call at 57.5 bps.

RBC Capital Markets Corp. and TD Securities Inc. were the lead managers.

Proceeds will be used for development and redevelopment activities, for acquisitions and for general corporate purposes.

Toronto-based First Capital Realty is an owner, developer and operator of supermarket and drugstore-anchored neighborhood and community shopping centers in Canada.

Catalyst retreat continues

They say what goes up must come down, and traders saw proof of that in the behavior of Catalyst Paper Corp.'s bonds, which had firmed solidly last week, possibly on the news of a debt paydown by the Canadian paper manufacturer. But after having come in a little on Thursday and Friday from their mid-week highs, the bonds were seen down again on Tuesday.

A trader said that overall, "paper seemed a little lower," and specifically mentioned that he had seen Catalyst's 7 3/8% notes due 2014 fall.

He said that the Richmond, B.C.-based company's bonds had begun the day at 83 bid, then dropped down to 80 and finally ended the day around 81½ bid, 82 offered.

"Down 2 points, up a point, down a point on the day," he summarized, noting that "those were the ones that moved," and on "decent volume," versus the 11% notes senior secured notes due 2016, which have recently been trading above par. He saw the latter bonds - recently as good as around 102-103 - fall to 101 bid but said that the 7 3/8s "were the big movers."

"I don't know how much activity there was in those [i.e., the 11s] - the 7 3/8s seemed to be more active."

A second trader called the latter bonds "kind of active," seeing them easing to 81½ bid.

Those bonds had risen as high as 86 bid, 86½ offered around the middle of last week - a gain of at least 4 or 5 points from their prior levels - after Catalyst announced plans a week ago for an early redemption on its 8 5/8% notes scheduled to come due on June 15; instead, the company called the bonds for redemption at par on Feb. 11. Market sources suggested that the call announcement was a sign of Catalyst's resolve to improve its balance sheet, thus pushing its other bonds not involved in the redemption higher.

However, after hitting those peak levels last Wednesday, the Catalyst bonds began to come in, with the 7 3/8s declining to around 84 bid on Thursday and easing another point to 83 on Friday and continuing to erode on Tuesday.

"They bounced up too much [last week] on that news," the second trader said, estimating a fall of at least 3 points over the last two or three sessions.

Traders trying to explain the slippage said that the redemption news was not that big a deal. "I didn't understand it," the second trader said. "Those bonds went up by 5 points - I thought it was ridiculous."

He and other traders noted that only $26 million is being taken out by the call - the amount that remains currently outstanding of the $400 million originally sold early in the last decade by Catalyst's corporate ancestor, Norske Skog Canada Ltd., which issued $250 million in 2001 and an additional $150 million in 2003. Partial redemptions over the intervening years have whittled the outstanding amount down to present levels.

They also pointed out that the Feb. 11 early redemption only shaves slightly less than four months off the life of those bonds.

Nortel trades actively

A trader said that Nortel Networks Corp.'s 10¾% notes due 2016 were actively traded during the day, calling them up 1½ points on the day around 87 bid.

A market source at another desk pegged them up some 2¾ points at the 87 level and said that over $20 million of the notes had traded by mid-afternoon, making Nortel one of the busiest of high-yield names on a generally light day.

The first trader said the 10¾% issue "was really the only one that was trading that I see." He saw all of one trade in the company's 10 1/8% notes due 2013 at 86 7/8, up 1¼ points.

There was no fresh news out to explain the suddenly renewed investor interest in the bankrupt Toronto-based telecommunications equipment manufacturer, which is in the process of winding down its operations and selling off its various assets.

OPTI Canada a little lower

A trader said OPTI Canada Inc.'s bonds were "a little lower" on the day, quoting the Calgary, Alta.-based oil-sands energy company's 7 7/8% senior secured second-lien notes due 2014 at 69 bid, 70 offered, which he estimated was down a point.

However, he emphasized that these were quotation levels, as opposed to actual trades, in keeping with the overall quiet market seen on Tuesday.

He called activity in OPTI Canada "very thin - virtually no activity."

He quoted the company's 8¼% notes also due in 2014 at that same 69-70 level, down 1 point on the day, on "not much activity."

OPTI Canada's bonds had drifted down to around the 70 area at the end of last week from levels around 72 bid they briefly touched earlier in the week after the problem-plagued company had some rare good news for investors. At that time, it reported an 11% increase in daily production of bitumen crude oil in December at the Long Lake, Alta., oil-sands facility that 35%-owner OPTI runs in a joint-venture with partner Nexen Inc., which owns the other 65%.

Bondholders, as well as shareholders of the two companies, have worried that the facility has been slower than anticipated in ramping up to its projected target levels for the extraction of bitumen, a thick and heavy grade of crude oil that the plant owners hope to convert into the more desirable and profitable light sweet crude oil using a proprietary technology.

But while daily average production increased from 26,200 barrels in November to 29,100 barrels in December, that is still less than the 38,000-to-45,000 daily average that Nexen recently estimated for this year - and that in turn is still well below the 72,000 barrels per day figure that the three-year-old plant is theoretically capable of producing.

Andrea Heisinger and Paul Deckelman contributed to this review

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