Royal Bank of Canada, Vermilion, Valeant fill appetites; interest keen in oil, gas bonds

By Cristal Cody

Prospect News, Feb. 3 - The provincial, high-yield and high-grade markets in Canada had a few deals to mull on Thursday, sources said.

The Province of Quebec brought a new bond offering, the Royal Bank of Canada reopened an issue initially sold a year ago and Vermilion Energy Inc. upsized its junk bond sale. Meanwhile, Valeant Pharmaceuticals International sold $650 million of 10.5-year senior notes in the U.S. market.

"The Vermilion deal is a good indicator that market credit is quite strong," a source said.

Vermilion Energy's deal attracted 72 buyers, one source said.

"The energy sector just has a great deal of interest in it," another source said. "It priced pretty tight and just hit all the right spots of investor interest - five-year versus 10s, so it was a little bit more interesting. The interest is even on other things like Baytex."

The 9.15% series A debentures due Aug. 26, 2016 from Baytex Energy Corp., a Calgary, Alta.-based oil and gas company, typically trade tight.

"It's trading in the low 6s yield to worst," the source said.

Canadian government bonds fell on strong U.S. data as both markets prepare for monthly job numbers scheduled for release on Friday.

The yield on Canada's 10-year note rose to 3.42% from 3.39%. The two-year note yield closed up at 1.766% from 1.75%.

"The overall scene, not just today but for the past week and months, has been a relentless grind higher," said Douglas Porter, BMO Capital Markets' deputy chief economist. "We did see both long-term Treasury and Government of Canada yields hit their highest levels since last May, with 10-year yields pushing above 3.4% in Canada."

The 10-year Treasury benchmark note yield rose to 3.55% from 3.48%. The 30-year bond yield rose 4 bps to 4.66%.

The Institute for Supply Management's non-manufacturing index on Thursday was strong at 59.4 in January, up from 57.1 in December. Also showing economic improvement, unemployment claims fell 42,000 in the previous week, the Labor Department said.

Quebec prices

In the provincial market, Quebec (Aa2//AA-/DBRS: A) sold C$500 million of 4.25% notes due Dec. 1, 2021 at 99.652 to yield 4.29% on Thursday, informed sources said.

The deal priced at a spread of 75.5 basis points over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

RBC sells C$700 million

In the high-grade offering of the day, the Royal Bank of Canada (Aa1/AA-/DBRS: AA) sold C$700 million in a reopening of its 3.36% deposit notes due Jan. 11, 2016 at 99.607 to yield 3.447% on Thursday, according to a source.

The notes priced at a spread of 79.3 basis points over the Government of Canada benchmark.

RBC Capital Markets Corp. was the manager.

The issue originally was sold on Jan. 1, 2010 at 85.5 bps over. The total outstanding is C$2 billion.

Vermilion upsizes

Two high-yield deals were sold in Canada and the United States. Vermilion Energy Inc. sold an upsized C$225 million of 6.5% senior notes due Feb. 10, 2016 at par on Thursday, sources said.

The notes (/BB-/DBRS: BB) priced at a spread of 383.3 basis points over the Government of Canada benchmark.

The deal was upsized from C$200 million. The five-year notes were talked to yield 6.5%-6.625%.

The deal had 72 buyers, a source said.

The notes have a Canada call at 100 basis points plus the Canadian benchmark. The issue has a change of control put at 101%.

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

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

In secondary trading, another source said Vermilion's notes were 101.5 bps bid.

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

Valeant taps U.S. market

Across the border, Valeant Pharmaceuticals International priced a $650 million issue of 10.5-year senior notes (B1/BB-) at par to yield 6¾%, according to an informed source.

The yield printed at the tight end of the 6 7/8% area price talk.

Goldman Sachs & Co. ran the books for the quick-to-market issue.

When the new notes were freed for aftermarket dealings, a trader saw them trading at 100 1/8 bid, 100 3/8 offered, "up 1/8 to 1/4, somewhere in that neighborhood."

A second trader quoted them at 100¼ bid, 100½ offered, but a bit later on in the day, yet another market source said the bonds had firmed a little more, to around 100 3/8 bid. 100 7/8 offered.

The company priced the bonds at par in an opportunistically timed, quickly shopped "drive-by" offering, the biggest deal of the day in Junkbondland.

The Mississauga, Ontario-based specialty pharmaceutical company plans to use the proceeds to finance the acquisition of PharmaSwiss SA, a privately owned branded generics and over-the-counter pharmaceutical company based in Zug, Switzerland. Valeant also plans to use proceeds to fund the acquisition of all U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax from GlaxoSmithKline and for general corporate purposes

Nortel rises

Nortel Networks Corp.'s 10¾% notes due 2016 rose for a second consecutive session, pushed up by investor reaction to Wednesday's report in The Wall Street Journal that the Toronto-based telecommunications systems manufacturer was close to selecting a stalking-horse bidder for the upcoming auction of its vast portfolio of valuable patents.

The bonds, which on Wednesday had risen by at least 2 points on the day, were seen up another 1¾ points Thursday to around the 92¾ area.

Meanwhile, the bankrupt company's nearly worthless stock - it trades via the Pink Sheets between a nickel and a dime per share - saw heavy activity on the report, at one point doubling in price to 8 cents per share before going home at a fraction over 5 cents, up about 1¼ cents, or 30.54%. Volume of 58.7 million shares was 42 times the usual activity level.

The Journal had reported on Wednesday that Nortel, which filed for bankruptcy in 2009 and has been liquidating its far-flung assets - expects to select an initial bidder for its massive portfolio of some 4,000 patents, probably within three weeks. Among the companies reported to be among the pool of at least five potential buyers are such high-tech heavyweights as Apple Inc. and Google Inc.

The patents are expected to go for at least $1 billion, with the proceeds to be distributed among Nortel's various creditors.

OPTI takes a ride

OPTI Canada Inc.'s debt gyrated on Thursday as the company held an investor call to discuss its recent developments.

A trader said the subordinated paper - the 7 7/8% and 8¼% notes due 2014 - "rallied back" to 52 bid, 53 offered, which compared to levels in the mid-40s on Wednesday.

"So they've been bouncing around," he said, adding that the debt was "by far the most active thing in the market."

Another trader said that as much as $400 million or more of the company's various bonds changed hands, with the subs experiencing a "more than 12-point swing" during Thursday trading. He said the notes traded as low as 41½ and as high as 56, before settling back in to 52 bid, 53 offered. When asked why the bonds were trading all over the map, the trader opined that "one guy tried to dump out all his paper" and others swooped in.

As for the senior issues, the trader said the 9¾% notes due 2013 "traded as cheaply as 91," but ended the day 97½ bid without a right side. The 9% "super seniors" due 2012 - dubbed thus as it is believed the paper would be well covered in the event of a bankruptcy - meantime opened around 97 bid, 98 offered and moved up to close at 98¾ bid, 99½ offered.

"[OPTI] was definitely the driving force of the day," he said.

The trader also remarked that OPTI's conference call was "useless and meaningless," though he did find it interesting that at least 300 people were on the call.

"There's no better game in town," he said.

Yet another market source called the day's movements "pretty amazing," seeing the sub notes bottom out at 44 and closing with a 55 bid.

"That's a heck of a move in a day," he said. "It's a situation that's moving so quickly."

At another shop, a trader said the bonds closed around the 52 level, which compared to midday levels of 45 bid, 46 offered.

The debt has been on a steady decline ever since the company announced it had hired Lazard Frères & Co. LLC to assess its strategic alternatives. Lazard will work alongside Scotia Waterous Inc. and TD Securities Inc., which were hired as financial advisors in November 2009.

On another desk, a trader said that "you can guess" what was the most active high-yield name on Thursday - OPTI's 7 7/8% notes due 2014 and 8¼% notes, also due 2014, which had seemingly been in free-fall over the past several sessions, sliding down into the upper 40s by Wednesday evening.

On Thursday, though, the bonds bounced "quite a bit, actually" from lows in very heavy dealings. With the 7 7/8s as the more active of the two - there was, he said, "a lot of lot of trading in those" - the bonds continued to slide in the early going, falling as low as 44 bid, then bouncing around between that nadir and a peak level on the day of 55, a volatile range, which he termed "nuts." He last saw both issues going out around 52 bid, reiterating that "a lotta, lotta bonds" had changed hands.

He said: "Obviously, they've had some operational issues" with the big Long Lake, Alta. Oil-sands energy facility, which Calgary-based OPTI owns jointly with Nexen Inc. in a 35-65 relationship. "I don't think Moody's expects them to pay [their next coupon], so they're going to have to sell the operation to somebody that's better-heeled."

He said in that scenario, the bondholders "figure whoever does that, these things are worth at least 50 [cents on the dollar]."

Another trader said that OPTI's bonds "were the big-volume guys today" and were "starting to move back up" after having taken a continual pounding over the previous few sessions, he said, pegging them just below 52 bid, calling that a rise of 2½ to 3 points on the session "on huge volume."

He estimated that some $200 million of the 7 7/8s had traded and $100 million of the 81/4s moved, allowing that the turnover was probably even more than that given the limitations of the Trace system in accurately tracking the size of any high-yield trades of as little as $1 above the round-lot floor of $1 million.

Yet another market source quoted the 81/4s at 52¼ bid, calling them up 3 points on the day, while seeing the 7 7/8s up 2½ points on the day at 51¾ bid.

OPTI is a Calgary, Alta.-based oilsands producer. The company is slated to release earnings next week.

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

© 2015 Prospect News.
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