Plenary Properties LTAP, Quebec tap markets; Axcan starts roadshow; OPTI Canada bonds active

By Cristal Cody

Prospect News, Jan. 25 - Activity continued at a steady pace in the Canadian corporate and provincial bond markets on Tuesday with new deals from Plenary Properties LTAP LP and the Province of Quebec.

Additional details on the sale from Institutional Mortgage Securities Canada also emerged. The deal is expected to include two tranches of commercial mortgage-backed securities.

Also coming up in new offerings, Axcan Intermediate Holdings Inc. plans to sell a $225 million offering of seven-year senior secured notes later in the week, a source said.

In secondary activity, massive trading activity was seen in OPTI Canada Inc.'s bonds. Traders also said bonds from Catalyst Paper Corp. traded up, while Nortel Networks Corp.'s notes due 2016 were weaker.

Meanwhile, Canadian government bonds rallied on softer economic data.

The 10-year bond yield fell to 3.274% from 3.3%. The two-year note yield fell to 1.674% from 1.72%.

Statistics Canada said the Consumer Price Index rose 2.4% on higher gas prices. This compares with a 2% rise in November and was below the forecast of 2.5%. The Bank of Canada's core index rose 1.5% in December following a 1.4% rise in November, Statistics Canada said.

"Canadian bonds rallied in the immediate aftermath of the CPI, which was generally a lower-than-expected number," said Douglas Porter, BMO Capital Markets' deputy chief economist. "We also saw a rally in Treasuries, which always sets a nice table for the Canadian bond market."

On Wednesday, Canada will auction C$3 billion of two-year notes, which is expected to be favorable.

Treasuries rallied on Tuesday after the auction of two-year notes and on news that President Barack Obama plans a partial freeze on federal spending.

The yield on the 10-year note fell to 3.33% from 3.4%. The two-year note yield fell 4 basis points to 0.57%.

Plenary Properties prices

Plenary Properties sold C$1.01 billion of bonds (/A/DBRS: A) in two tranches on Tuesday, according to a source.

The sale included C$167.47 million of 3.801% notes due Aug. 15, 2014 at 101.392 to yield 3.381%, or a spread of 118.8 bps over the Government of Canada benchmark. The notes were talked in the 115 bps area.

Plenary Properties also sold C$839.63 million of 6.288% bonds due Jan. 31, 2044 at 105.828 to yield 5.798%. The notes priced at a spread of 200 bps over the Canadian government benchmark. The notes were talked in the area of 200/205 bps.

RBC Capital Markets Corp. was the lead manager.

Plenary Properties is a special-purpose entity created to build and maintain a high-security office, special-purpose building and 800-car parking facility for the Communications Security Establishment Canada Long-Term Accommodation project in Ottawa. The Communications Security Establishment Canada agency protects the Government of Canada's communication and electronic information.

Quebec reopens 5% bonds

The Province of Quebec (Aa2/A+/DBRS: A) sold C$500 million in a reopening of its 5% bonds due Dec. 1, 2041 at 105.592 to yield 4.635% on Tuesday, an informed source said.

The bonds priced at a spread of 89 bps over the Government of Canada 4% 2041 benchmark.

National Bank Financial Inc. was the lead manager.

The issue now has C$6 billion total outstanding.

Institutional Mortgage Securities Canada sale detailed

Institutional Mortgage Securities Canada is expected to sell two tranches of commercial mortgage-backed securities, a source said Tuesday.

A roadshow was scheduled on Monday for C$206 million of series 2011-1 commercial mortgage passthrough certificates, an informed source said.

The five-year tranche was talked in the area of 120 bps over the Canadian government benchmark. The 10-year tranche was talked in the area of 145 bps over.

TD Securities is the lead manager. Co-managers are Bank of America Merrill Lynch, RBC Capital Markets Corp., CIBC World Markets Inc. and National Bank Financial Inc.

Pricing is expected on Thursday.

The sale is a securitization of 16 Canadian commercial mortgages with two borrowers, Toronto-based RioCan Real Estate Investment Trust and Vaughan, Ont.-based Calloway Real Estate Investment Trust, the source said.

Axcan starts roadshow

Axcan Intermediate Holdings began a roadshow on Tuesday for a $225 million offering of seven-year senior secured notes (/BB/), according to an informed source.

The deal is set to price late in the week ahead.

Bank of America Merrill Lynch, Barclays Capital, RBC Capital Markets and HSBC are the joint bookrunners for the Rule 144A with registration rights offering.

The notes come with three years of call protection. However, a special call provision would allow the issuer to redeem 10% of the notes annually at 103 during the non-call period.

The notes also come with a 101% poison put.

Proceeds, together with cash on hand, proceeds from an equity contribution and a term loan, will be used to finance the acquisition of Eurand NV and to pay off some debt of Axcan and Eurand.

Axcan is a Mont-Saint-Hilaire, Quebec-based pharmaceutical company focused on the treatment of gastrointestinal disorders.

OPTIs active, weaker

A trader said investors were "posturing" ahead of earnings season for oil-sands producers - which begins Thursday with results from Canadian Oil Sands Ltd. - resulting in massive trading volume for OPTI Canada.

"They were the biggest by far," he said, estimating that $100 million to $150 million of the Calgary, Alta.-based company's various issues turned over.

The biggest OPTI trader was the 7 7/8% notes due 2014, with about $40 million changing hands. The trader pegged the bonds around the 64 level, noting that they had gotten as low as 63 before climbing back up.

The 8¼% notes due 2014 meantime closed at 64¼ bid, 64½ offered, while the 9% notes due 2012 finished at 99¾ bid, 100¼ offered.

He added that all issues were about a point weaker as investors sold subordinated issues to grab senior paper.

Another trader saw both the 7 7/8% and 8¼% notes at 633/4, which he deemed down almost 1½ points.

The market is expecting fourth-quarter results from the oilsands sector to be better than 2009 comparables. In some cases, the results could be as much as 45% better given the 12% increase in crude prices from 2009 to 2010.

Still, OPTI - which will release its quarterly results on Feb. 10 - could come in below expectations, as its Long Lake joint venture with Nexen Inc. has struggled to bring the project up to capacity. OPTI has previously said on numerous occasions that its financial health relies heavily on the project.

Another trader said that OPTI Canada's bonds were among the most active junk issues trading on Tuesday, seeing the Calgary, Alta.-based oil-sands company's paper down at least a point or more from the levels seen on Monday.

He saw its 7 7/8% notes due 2014 trading at 63¾ bid, and its 8¼% notes due 2014 at 64 bid, down from the levels in the 65-to-66 area at which those bonds had traded on Monday.

He saw over $30 million of the 7 7/8s changing hands and some $25 million of the 81/4s, putting both near the top of Junkbondland's most-actives list.

Another market source quoted the 81/4s at 64 1/8, down 1 3/16 from Monday's levels, while the 7 7/8s lost 1 3/8 point to end at 63¾ bid.

There was no fresh news out about the company, which is 35% owner (Nexen has the other 65%) of Long Lake, a so-far problem-plagued oil-shale bitumen extraction and conversion facility at Long Lake, Alta.

Catalyst rises

A market source saw Catalyst Paper's 7 3/8% notes due 2014 at 86 bid, up 2¼ points on the session.

The Richmond, B.C.-based paper manufacturing company's bonds pushed up solidly for a second straight session, helped by Monday's news that Rock-Tenn Co. will acquire Smurfit-Stone Container Corp. in a $5 billion deal, including debt and pension assumption, that will create a paper packaging industry powerhouse.

Nortel weaker

Nortel Networks' 10¾% notes due 2016 lost ½ point Tuesday to end at 88 bid.

There was no fresh news seen out on the bankrupt Toronto-based communications systems manufacturer, which is in the process of selling off its various assets and winding down the company.

Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo contributed to this review

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