Junk oil and gas deal forecast; CHIP Mortgage sells C$175 million; Cadillac Fairview firms

By Cristal Cody

Prospect News, Jan. 26 - The deal drought for Canadian high-yield traders that began in the new year is expected to break soon with a bond offering in the oil and gas sector, a source said Wednesday.

"There's one deal that's coming that we expect to see in the next couple of weeks," a source said.

The targeted C$200 million deal hasn't been publicly announced yet.

"Other than that, there's a lot being talked about but nothing firm," the source said.

While other bond markets in Canada already have attracted a number of new high-grade, provincial and global bond deals, the high-yield market has been kept waiting. In the meantime, high-yield bond trading has remained strong so far in January, according to sources.

"They're performing well and tightened here and there, maybe because of a lack of new product," one source said.

For example, Cara Operations Ltd.'s 9.125% senior secured second-lien guaranteed notes due 2015 (BB-/B) traded Wednesday "wrapped around 105.5," an informed source said.

The notes priced on Nov. 24 at par.

Vaughan, Ont.-based Cara Operations is the largest full-service restaurant operator in Canada.

In other activity on Wednesday, final sale details from CHIP Mortgage Trust and the Bank of Montreal were released.

In the secondary market, Cadillac Fairview Finance Trust's notes firmed in trading, while OPTI Canada Inc.'s bonds were mixed but active, traders said.

Canadian government bonds also were mixed with the longer-term part of the curve drifting lower after the Federal Reserve continued its commitment to the $600 billion bond buyback program.

Canada's 10-year bond yield rose to 3.314% from 3.3%. The two-year note yield fell to 1.674% from 1.7%.

U.S. Treasuries erased the previous day's gains on Wednesday. The 10-year Treasury note yield rose to 3.42% from 3.33%. The two-year note yield rose 6 basis points to 0.63%.

CHIP Mortgage Trust prices

Homeq Corp. said Tuesday that subsidiary CHIP Mortgage Trust sold C$175 million 3.97% senior medium-term notes (DBRS: AAA) due Feb. 1, 2016.

The notes were priced at a spread of 138 bps over the corresponding banker's acceptance rate.

The notes are unconditionally guaranteed by Homeq.

RBC Capital Markets Corp. was the lead manager. Co-managers included Scotia Capital Inc. and CIBC World Markets Inc.

"We are very satisfied with this transaction," Gary Krikler, CHIP's chief financial officer, said in a statement. "Demand for the notes was particularly strong and came from a broad investor base. Medium-term notes are an important source of funding, and the decrease in cost of this issue further enhances our profit potential."

CHIP Mortgage will use the proceeds to redeem the remaining $136.8 million of series 2008-1 medium-term notes before the final payment date of May 16 and to repay a portion of the series 2007-3 notes on May 2.

The weighted average rate on the series 2008-1 and series 2007-3 notes was 186 bps over the corresponding banker's acceptance rate, representing a savings of 48 bps, Homeq said in the statement.

Toronto-based CHIP Mortgage Trust provides reverse mortgages for senior homeowners. Through its subsidiaries, Homeq finances its portfolio of reverse mortgages through a combination of equity, senior and subordinated medium-term notes and term deposits.

Bank of Montreal terms set

The Bank of Montreal released final details of its sale of $1.5 billion of benchmark 2.625% series 3 five-year covered bonds on Jan. 18 in the U.S. market.

The Rule 144A bonds (Aaa/AAA/AAA) were priced at 99.935 to yield 2.639%.

The bonds are non-callable and are backed by the Canada Mortgage & Housing Corp.

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

The bonds were sold under the Toronto-based financial services company's €7 billion global public sector covered bond program. The Bank of Montreal has applied to list the series 3 bonds for trading on the London Stock Exchange.

Cadillac Fairview firms

The two tranches of senior unsecured debentures that Cadillac Fairview Finance Trust priced on Jan. 19 tightened "a couple basis points" in secondary trading, a source said.

"It's done really perfect in the aftermarket," the source said. "There hasn't been a massive volume; most people are quite happy with what they bought."

The new Ontario Teachers Pension Plan Board subsidiary sold C$1.25 billion of 3.24% series A notes due Jan. 25, 2016 at a spread of 70.9 bps over the Government of Canada benchmark.

"The five years looks to be 68, 67," the source said Wednesday.

Cadillac Fairview Finance Trust also sold C$750 million in a second tranche of 4.31% series B notes due Jan. 25, 2021 at a spread of 106.6 bps over the Canadian government benchmark. The notes traded Wednesday at 104 bps bid, 103 bps offered.

The bonds are guaranteed by the Ontario Teachers Pension Plan.

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

OPTI still active

OPTI Canada's bonds continued to be "busy, but not quite as much as [Tuesday]," a trader said.

The trader said the bonds were up slightly, seeing the 7 7/8% notes due 2014 at 63½ bid, 64½ offered and the 8¼% notes due 2014 about a quarter-point above those levels.

But another trader said the bonds "continued to tick down," seeing the paper around 63 bid, 63½ offered on both issues.

OPTI debt has been trading actively in recent sessions but traded in massive size on Tuesday. A trader speculated that investors were "posturing" ahead of earnings season for oil sands producers, which begins Thursday with Canadian Oil Sands Ltd.'s quarterly release.

Stephanie N. Rotondo contributed to this review

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