Ontario sells C$600 million add-on; Skylink markets notes; municipal deals to pick up

By Cristal Cody

Prospect News, March 4 - Canada's bond markets saw a deal early Friday from the Province of Ontario, while the markets geared up for new offerings in the high-yield and municipal markets, sources said.

Most provincial issuers are expected to be out of the market for much of March while fiscal budgets are finalized.

"We'll definitely see a slowdown in issuance in Canada and may see a pickup in municipal issuance," a source said.

On Thursday, Moody's Investors Service assigned an Aaa senior debt rating to the Regional Municipality of Peel (Aaa/AAA/).

"The region of Peel has about C$500 million to do. We could see them tap the market with a reopening of their longs in the C$200 [million] to C$250 [million] size," a source said.

In addition, Montreal is talked to be in the market soon with a new 10-year bond, the source said.

Coming up in the Canadian high-yield market, Skylink Aviation Inc. is expected to sell a minimum of C$100 million of five-year notes (B/B) talked to yield 12% to 12.5%, a source said.

High-yield bonds were "well bid" on Friday, a source said.

Vermilion Energy Inc.'s 6.5% notes due Feb. 16, 2016 (/BB-/DBRS: BB) were holding steady at 103.25 bid, 104.25 offered. The Calgary, Alta.-based oil and gas producer sold the notes on Feb. 3 at par.

The secondary provincial bond markets mostly were quiet on light trading flow.

"Spreads haven't really moved much all day," a source said.

Ontario's reopened bonds were seen wrapped around the sale spread at 79 bps bid, the source said.

"There was not a whole lot of activity in trading before the Ontario deal," a source said.

Government bonds rally

Canadian government bonds rallied across the curve, sending yields down, following U.S. Treasuries. Canada's 10-year bond yield fell to 3.33% from 3.39%. The 30-year bond yield dropped 3 basis points to 3.77%.

U.S. Treasuries rallied on the shorter end of the curve on Friday after monthly job numbers came in lower than expected and on continued Middle East unrest going into the weekend that sent oil prices higher.

The 10-year benchmark note yield dropped to 3.49% from 3.55%, and the 30-year bond yield was down 2 bps at 4.6%.

The Labor Department said Friday that U.S. employers hired 192,000 workers in February, seen as a moderate growth rate. The unemployment rate fell to 8.9% from 9.0%.

Bonds had fallen on Thursday after the Labor Department said initial jobless claims fell 20,000 to 368,000, leading market participants to expect stronger monthly numbers.

"The market had moved to pretty good technical support on payroll numbers with 10-year yields at 3.57%. After the stronger numbers throughout the week, there were very high expectations for the bureau number to come out at 250,000 or more," said John Briggs, strategist at RBS Securities Inc.

The report wasn't weak but was not as strong as "feared or some had hoped," Briggs said. "The markets rallied on the data and then higher oil prices finally started to impact the equities market again."

Stocks fell while crude oil prices climbed 3.03% Friday to nearly $105 a barrel.

Ontario adds to 30-year bonds

In the day's lone bond offering, Province of Ontario (Aa1/AA-/DBRS: AA) priced an additional C$600 million in a reopening of its 4.65% bonds due June 2, 2041 at 101.084 to yield 4.583% on Friday, a source said.

The bonds priced at a spread of 79 bps over the Government of Canada benchmark.

"It's most likely their last deal of the fiscal year," a source said. "They're tabling their 2011 budget later this month and they usually shut down their borrowings a couple weeks before."

RBC Capital Markets Corp. was the lead manager.

The bonds were previously reopened on Feb. 4 at a spread of 74 bps. The issue now has a total outstanding of C$6.15 billion.

Skylink on tap

In the week ahead, Skylink Aviation is expected to sell a minimum of C$100 million of five-year notes (B/B) talked to yield 12% to 12.5%, a source said.

The company started a roadshow on Thursday in Toronto that continues through Monday.

RBC Capital Markets Corp. is the lead manager.

The Toronto-based global charter company specializes in emergency airlifts and evacuations and logistical support for governments and corporations.

Catalyst Paper steady

In the secondary market, a trader saw Catalyst Paper Corp.'s debt unchanged, with its 11% senior secured notes due 2016 staying around 103 bid, while its 7 3/8% notes due 2014 held at 85 bid, 86 offered.

OPTI Canada firms

A trader said that OPTI Canada Inc.'s bonds were "a little higher," pegging the Calgary, Alta.-based oil-sands energy producer's 7 7/8% and 8¼% notes both due 2014 at 55¾ bid, 56¾ offered, "up a solid half a point."

Valeant activity steady

A trader said that although he saw "a ton" of Valeant Pharmaceuticals International's new bonds trading on Thursday after they were priced by the Mississauga, Ont.-based drug maker, he didn't see them on Friday.

But a second trader did see them about unchanged from Thursday's initial aftermarket levels, with the 6½% notes due 2016 at 100 ½ bid, 100 7/8 offered, up from their par pricing, and its 7¼% notes due 2022 at 98½ bid, 99 offered, versus their 98.125 issue price.

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