OPTI Canada flat in active trading; Canadian bonds fall; primary quiet amid Egypt turmoil

By Cristal Cody

Prospect News, Jan. 31 - Canadian bond markets were quiet on the last day of January following the trend in the United States as issuers stayed on the sidelines while the situation in Egypt plays out.

Positive economic data in Canada and the United States drove government bonds down on the longer edge of the curve.

Canada's 10-year bond yield rose to 3.275% from 3.25%. The two-year note yield fell to 1.667% from 1.68%.

"We had some firm numbers in Canada, and the U.S. had similarly firm numbers," said Kam Bath, fixed income strategist with RBC Capital Markets Corp. "Those things combined to weigh on bonds in Canada and the U.S."

Canada's gross domestic product rose more than expected, by 0.4% in November, up from 0.2% growth in October, helped by the oil and gas extraction industries, according to Statistics Canada.

The data "outweighed" the ongoing unrest in Egypt, a source said.

U.S. Treasuries shed Friday's gains Monday on the stronger economic data as the markets stayed attuned to the unrest in Egypt.

The 10-year benchmark note yield rose 5 basis points to 3.37%. The two-year note yield added 2 bps to 0.56%.

Treasuries had rallied on Friday as investors sought safer debt havens as protests grew in Egypt.

Monday's positive economic data showed personal income and spending rose, while the Chicago manufacturing index, an indicator that is highly watched, was at 68.8, up from 66.8 and better than the expected 64.5.

Consumer spending rose 0.7% in December, while income rose 0.4%, the Commerce Department said.

Also, Statistics Canada said the raw materials price index rose 4.2% in December.

Vermilion deal ahead

Coming up, at least one new bond deal is in the works. Vermilion Energy Inc. started a roadshow for C$200 million five-year senior notes (DBRS: BB) on Monday. The investor meetings continue through Thursday.

The offering is likely going to price next Thursday after the Montreal roadshow, a source said.

Scotia Capital Inc. and CIBC World Markets Inc. are the lead managers.

The proceeds will be used for repayment of existing debt and for general corporate purposes.

Vermilion Energy is a Calgary, Alta.-based oil and gas producer.

Axcan to price

A deal also is expected late in the week from Axcan Intermediate Holdings Inc., which held a roadshow the previous week for a $225 million offering of seven-year senior secured notes (/BB/).

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

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

On Monday, Axcan announced the deadline for the tender offer to purchase Eurand's common shares has been extended to Feb. 11. The tender offer was set to expire on Feb. 3.

As of Friday, 82.301% of Eurand's shares had been tendered in the offer, Axcan said in the statement.

Axcan is a Mont-Saint-Hilaire, Quebec-based specialty pharmaceutical company focused on gastroenterology.

OPTI's still dominating

OPTI Canada Inc.'s bonds were again trading on the active side, though a trader said the debt was "not much different" in terms of price.

He pegged both the 7 7/8% and 8¼% notes due 2014 around 60, which he said was off maybe a quarter-point.

Another trader also placed the issues around the 60 level.

Last week, Canadian Oil Sands Ltd. started off earnings season for oil sands producers, reporting a nearly triple increase in profit for the fourth quarter of 2010. Oil sands producers in general are expected to see a surge in their fourth-quarter results, in part due to the rising price of oil.

Calgary, Alta.-based OPTI could benefit as well, though the company's Long Lake joint venture project with Nexen Inc. has been beset with operational issues and the project has yet to produce up to full capacity.

OPTI's results are expected on Feb. 10. The company has previously said that its financial health depends largely on the oil sands project.

Stephanie N. Rotondo contributed to this review

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