Ontario, Hydro-Quebec, Cadillac Fairview Finance Trust tap markets; new provincials firm

By Cristal Cody

Prospect News, Jan. 19 - New deals kept the Canadian bond and preferred stock markets busy on Wednesday, and at least one new provincial bond sale is ahead.

In the provincial market, the Province of Ontario sold C$600 million in a reopening of its 4.65% bonds due 2041 and Hydro-Quebec priced C$500 million in a reopening of its 5% 40-year debentures.

The corporate market also saw a deal from Cadillac Fairview Finance Trust, which sold C$2 billion in two tranches of senior debentures.

"There's expectations for corporate issuance because demand is there," a source said. "We're in a yield-starved environment, and it's still a borrower's market."

Coming up, the Province of Ontario also is expected to sell three-year U.S. dollar-denominated notes, sources said.

Additional details are expected on Thursday, one source close to the sale said.

"It won't be launched until tomorrow," the source said.

The reopened issues from Ontario and Hydro-Quebec firmed in the secondary market, a source said.

"Those are two benchmark issues on the long end, [which has] performed well," the source said. "The reception of these two deals was good and people wanted more."

Also on Wednesday, the Canadian preferred market was active with a C$215 million offering of 4.6% preferred shares from Brookfield Asset Management Inc.

Government bonds rally

Canadian government bonds rose, sending yields down on the day. The 10-year bond yield fell to 3.238% from 3.29%. The two-year note yield fell to 1.69% from 1.78%.

The quarterly monetary policy report from the Bank of Canada on Wednesday provided nothing new, said Sheldon Dong, vice president of fixed-income strategy at TD Waterhouse Canada in Toronto.

On Tuesday, the Bank of Canada left the key overnight target rate at 1%.

"It was pretty much outlined yesterday. TD doesn't think the bank will raise it to July, which coincides with the end of the Federal Reserve's QE2 program," he said.

The Federal Reserve has committed to a $600 billion quantitative easing program to buy back Treasuries to stimulate the U.S. economy. On Wednesday, the Federal Reserve Bank of New York purchased $7.716 billion in two- and three-year Treasuries.

Trading in U.S. Treasuries was light and volatile, market participants said.

"It was a choppy session," said Mary Ann Hurley, a fixed income trader for D.A. Davidson & Co. "It opened up lower in the day, moved to unchanged and now is higher."

The yield on the 10-year note fell to 3.34% from 3.37%. The two-year note yield dropped 2 bps to 0.56%. The 30-year bond yield fell 3 bps to 4.53%.

Province of Ontario on tap

The Province of Ontario plans to sell new global U.S. dollar-denominated three-year senior

benchmark notes, sources said Wednesday.

Deutsche Bank Securities Inc., HSBC Capital (Canada) Inc., J.P Morgan Securities LLC and RBC Capital Markets Corp. are the lead managers.

Ontario sells C$600 million

The Province of Ontario (Aa1/AA-/DBRS: AA) sold C$600 million in a reopening of its 4.65% bonds due June 2, 2041 at 101.235 to yield 4.574% on Wednesday, a source said.

The notes priced at a spread of 84.5 bps over the Government of Canada benchmark.

RBC Capital Markets Corp. was the lead manager.

Ontario's notes firmed in the secondary market, a source said.

"They are tighter at 83.5 [bps] ending the day," the source said.

Ontario previously reopened the issue on Dec. 14 to sell C$600 million at an 82 bps spread. The issue now has a total of C$4.35 billion outstanding.

Hydro-Quebec sells 40-years

Hydro-Quebec sold C$500 million in a reopening of its 5% series JN debentures due Feb. 15, 2050 at 107.145 to yield 4.604% on Wednesday, an informed source said.

The debentures (Aa2//AA-/DBRS: A) were sold at a spread of 87.5 bps over the Government of Canada benchmark.

National Bank Financial Inc. was the bookrunner. CIBC World Markets Inc. and TD Securities Inc. were the co-lead managers.

The sale was the seventh additional tranche in the series, first sold on Jan. 15, 2009. The total outstanding now is C$4 billion.

Hydro-Quebec's notes firmed 1 bp, closing out at 85.5 bps in the secondary market, a source said.

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

Cadillac Fairview prices

Cadillac Fairview Finance Trust (/AAA//AAA) priced an upsized C$2 billion in two tranches of senior debentures on Wednesday, an informed source said.

The new Ontario Teachers Pension Plan Board subsidiary sold C$1.25 billion of 3.24% series A notes due Jan. 25, 2016 at 99.995 to yield 3.341%, or a spread of 70.9 bps versus the Government of Canada benchmark. The notes were talked at 70 bps and upsized from C$900 million.

In the second tranche, the agency sold C$750 million of 4.31% series B notes due Jan. 25, 2021 at 99.976 to yield 4.313%. The notes priced at a spread of 106.6 bps over the Canadian government benchmark. The tranche was upsized from C$600 million, and the notes were talked at 100 bps.

The bonds are guaranteed by the Ontario Teachers Pension Plan.

TD Securities Inc. was the lead manager. RBC Capital Markets Corp. was a co-lead manager.

Cadillac Fairview Finance Trust is the new real estate funding vehicle of the Ontario Teachers Pension Plan Board.

Catalyst gives up gains

A trader said that Catalyst Paper Corp.'s bonds continued to fall, as the Richmond, B.C.-based paper manufacturer's debt moved back to around the levels it held before the intense, but short-lived upside flurry last week following its announcement that it would call a smallish outstanding deal for redemption several months before the scheduled maturity date.

He saw Catalyst's 7 3/8% notes due 2014 "drop a bit" to finish at 811/2, which he called a 1½ point loss from Tuesday's level.

Those bonds had risen last week from around the 81 level to as high as 86 bid after Catalyst said it would redeem the remaining $26 million of its 8 5/8% notes coming due on June 15 about four months ahead of schedule, calling them for a Feb. 11 redemption at par.

"That was just a small deal that didn't amount to much," he said in explaining why the bonds finally gave up all of their gains over the last few sessions.

He said that the bonds were "mainly quoted down a point, but there was really no trading in it" on Wednesday.

He also saw the larger and generally more active 11% senior secured notes due 2016 down a point in a 100½ to 101 bid context, versus 102 on Tuesday.

OPTI drops again

Levels of OPTI Canada Inc.'s bonds remained depressed, though on no news, according to traders.

One trader said the bonds were "down a couple points on fairly decent volume," seeing the 8¼% notes due 2014 at 67, versus 69 bid, 69½ offered previously. The 7 7/8% notes due 2014 were "down a similar amount," trading around 661/2.

Another trader said the debt was "a good bit lower," noting that the 7 7/8% notes started the day around 68½ but dropped down to end at 66 bid, 67 offered.

The company was under the scrutiny of another trader, who said OPTI Canada's bonds moved down about 4 points on the day, with its 7 7/8% senior secured notes due 2014 easing to 67 bid, after having traded above the 70 mark previously.

"There was some trading there," and in the Calgary, Alta.-based oil sands energy company's 8¼% notes due 2014, he said, quoting the latter bonds also falling to around 67 bid from 70, with "a little more trading in that one, more volume on the 81/4s."

Brookfield sells preferreds

In the Canadian preferred market, Brookfield Asset Management priced C$215 million 4.6% series 28 preferred shares on Wednesday.

The company sold 8.6 million preferred shares at C$25.00 per share.

The preferreds have a 4.6% annual dividend for the initial period ending June 30, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 180 bps.

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

The sale includes an over-allotment option of up to 1.29 million more preferred shares.

The proceeds will be used for general corporate purposes, including funding a portion of the company's acquisition of additional common shares in U.S. mall operator General Growth Properties Inc.

Toronto-based Brookfield manages more than $100 billion of property, power and infrastructure assets.

Paul Deckelman and Stephanie N. Rotondo contributed to this article

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