Ontario, CIBC, H&R REIT bring deals; more supply expected; OPTI Canada bonds recoup losses

By Cristal Cody

Prospect News, Jan. 20 - The Province of Ontario and the Canadian Imperial Bank of Commerce sold notes in the U.S. market, while H&R Real Estate Investment Trust brought the third REIT deal of the week in Canada on Thursday.

Looking ahead to the upcoming week, deal activity in provincial bonds is expected to stay active. Whispers of a new provincial deal in 10-year notes or 30-year bonds from New Brunswick were making the rounds on Thursday, a source said.

Issuance in provincial bonds is expected to be about C$84 billion in 2011.

Provincial bond "spreads are holding in fairly well," a source said Thursday.

Ontario's 4.65% long bonds due June 2, 2041 that was reopened on Wednesday at 84.5 basis points over the Government of Canada benchmark traded Thursday 1 bp tighter at 83.5 bps, a source said.

Elsewhere, trading remained volatile in OPTI Canada Inc.'s bonds, which rallied by the end of the day, traders said.

Canadian government debt fell in line with U.S. Treasuries on better economic data. Canada's 10-year bond yield rose to 3.304% from 3.24%. The two-year note yield closed at 1.721% from 1.7%.

Statistics Canada said wholesale trade rose 1.2% to C$45.7 billion in November and the composite leading indicator index rose 0.5% in December on stock market prices and household spending.

U.S. Treasuries sank after a weak auction of $13 billion of 10-year Treasury Inflation-Protected Securities. The 10-year note yield closed the day at 3.45% compared to 3.34% on Wednesday. The two-year note yield rose 7 bps to 0.63%.

The Treasury sold the 1.125% TIPS at a high yield of 1.17%.

"The TIPS auction was poorly received," said Nick Kalivas, a market strategist at MF Global. "It appeared the yield probably wasn't enough and there is a little bit of some of the money in recent days that has been more willing to look outside the market for other places of value."

In economic data, initial unemployment claims fell 37,000 in the previous week, the Labor Department said. Continuing unemployment claims fell 26,000, the lowest level since October 2008.

Ontario sells $3.5 billion

The Province of Ontario (Aa1/AA-/DBRS: AA) sold an upsized $3.5 billion of 1.375% global senior notes due Jan. 27, 2014 at 99.699 to yield 1.478% in the U.S. market on Thursday, an informed source said.

The notes priced at a spread of 45.85 bps over Treasuries, or 18 bps over mid-swaps.

The deal was upsized from an initial $3 billion.

The deal launched overnight at mid-swaps plus 20 bps at a benchmark size of about $1 billion, a source said.

"It looked pretty cheap when it came out at that level," a source said. "Spreads were revised to mid-swaps at 18 [bps]. There was a lot of investor interest. When we came in, the books were already north of $2 billion. It ended up with books of $4.5 billion."

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

Ontario's sale takes care of more than half of the province's remaining borrowing requirements, with about C$2.5 billion estimated left for the fiscal year, which ends March 31.

Ontario's new notes firmed in the secondary market to 43 bps bid, 42 bps offered, a source said.

CIBC prices $2 billion

Canadian Imperial Bank of Commerce sold $2 billion of 2.75% five-year covered bonds late Thursday at a spread of Treasuries plus 71.8 bps, a source away from the sale said well after the market close.

The notes (Aaa/AAA) were sold at 99.958 to yield 2.759%.

The notes were priced under Rule 144A and are non-callable.

CIBC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and RBS Securities Inc. were the bookrunners.

The chartered bank and financial services company is based in Toronto.

H&R REIT sells debentures

H&R Real Estate Investment Trust (DBRS: BBB) sold C$150 million 4.778% series D senior debentures due July 27, 2016 at a spread of 208.2 bps over the Government of Canada benchmark on Thursday.

The series includes a call at 51.25 bps.

RBC Capital Markets Corp. and CIBC World Markets Inc. were the lead managers. TD Securities Inc., BMO Capital Markets Corp., Scotia Capital Inc. and Canaccord Capital Corp. were the co-managers.

The proceeds will be used to fund future property acquisitions and for general trust purposes.

RioCan Real Estate Investment Trust and First Capital Realty Inc. also sold debt earlier in the week.

Downsview, Ont.-based H&R REIT owns real estate that includes 33 office sites, 118 single-tenant industrial properties and 130 retail properties.

OPTI gets hit, rallies

OPTI Canada paper "started [the day] getting banged," a trader said. But by the end of business, he saw the bonds coming back to close about unchanged from the previous day.

The trader saw the 7 7/8% notes due 2014 at 66 bid, 67 offered and the 8¼% notes due 2014 at 66½ bid, 67½ offered.

"They've found middle ground," he said.

Another trader said the bonds were "lower, but not much lower," deeming both issues down about half a point, the 7 7/8% notes around 66¼ and the 8¼% notes around 661/2.

There hasn't been any fresh news out on the Calgary, Alta.-based oil sands producer, but the company's bonds have been gyrating for the last few weeks. One market source previously told Prospect News that OPTI - which has been struggling to ramp up production on its Long Lake joint venture project with Nexen Inc. - was the "weak sister" of the sector and that that could be the reason for the movements.

OPTI Canada active

Catalyst Paper flat

A trader saw Richmond, B.C.-based Catalyst Paper Corp.'s 11% senior secured notes due 2016 at bid levels around 100½ to 101, which he said seemed unchanged.

He saw the company's 7 3/8% notes due 2014 at 81 bid, 83 offered, calling them unchanged on the day. Those bonds have come down sharply from peak levels around 86 bid reached last week on Catalyst's announcement of the redemption of another series of bonds.

"So there was activity in the names. But there was more activity in the 11s - the 7 3/8s had no activity, they were just quoted there."

Andrea Heisinger, Stephanie N. Rotondo and Paul Deckelman contributed to this review

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