Manulife Financial sells C$200 million preferred stock; market readies for new junk bonds

By Cristal Cody

Prospect News, March 7 - Primary activity in the Canadian bond markets quieted on Monday with one offering in the preferred stock market, according to sources.

Manulife Financial Corp. announced an offering early in the day of C$200 million of non-cumulative rate rest class 1 preferred shares.

Some deal activity is expected in the week ahead in the high-yield markets in Canada with bond offerings from Perpetual Energy Inc. and Skylink Aviation Inc.

Canada's government bonds were flat to lower following U.S. Treasuries. Canada's two-year note yield was unchanged at 1.85%, while the 10-year note yield rose 2 basis points to 3.35%. The 30-year bond yield rose 3 bps to 3.8%.

In economic data on Monday, Statistics Canada said building permits fell 5.1% to C$5.4 billion in January due to lower construction plans for the residential sector in Ontario and the non-residential sector in Alberta and British Columbia.

The market overlooked the data as government bonds tracked Treasury yields, which were modestly higher across the curve.

"Equities were under pressure the whole day but bonds didn't rally too much at all," said Kam Bath, a strategist with RBC Capital Markets Corp.

Hawkish comments from Federal Reserve members and concern about the round of bond auctions for the week provided "a little bit of caution and weighed on bonds despite the sell-off in equities," Bath said.

Dallas Federal Reserve president Richard Fisher said in a speech early Monday that he might vote to end the Federal Reserve's quantitative easing program if it hinders economic growth.

The Federal Reserve Bank of New York purchased $6.61 billion of Treasuries due 2013 through 2015 on Monday as part of the $600 billion buyback program.

The yield on the 10-year Treasury note rose 2 bps to 3.51%. The 30-year bond yield also closed up 2 bps at 4.62%.

In new supply, the Treasury Department will auction $66 billion of bonds during the week, including $32 billion of three-year notes on Tuesday.

Oil prices, which weighed on stocks, did not seem to be a major factor with bond prices on Monday, sources said.

Manulife sells preferreds

Manulife Financial announced it sold C$200 million of non-cumulative rate rest class 1 preferred shares, series 3, on Monday in a Canadian offering.

Manulife priced 8 million shares at C$25.00 per share of the issue, which yields a fixed annual dividend of 4.2% for the initial period ending June 19, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 141 bps.

Scotia Capital Inc. and RBC Dominion Securities Inc. were the lead managers.

The deal is expected to qualify as tier 1 capital for Manulife.

The proceeds will be used for general corporate purposes, which may include investments in subsidiaries.

Manulife Financial is a Toronto-based financial services and reinsurance group that operates in 22 countries and territories.

OPTI Canada edges up

A trader saw OPTI Canada, Inc.'s 8¼% notes due 2014 at 56½ bid, calling the Calgary, Alta.-based oil-sands energy producer's paper "up slightly, maybe half point," on "decent volume."

A second trader agreed that OPTI's bonds were "a little better" today, despite a lack of fresh news out about the troubled company.

He saw the bonds get as high as 561/2, although he thought they "traded back down at the end of the day" to 551/2.

OPTI's 7 7/8% notes due 2014 were at 55 3/8 bid, 55¾ offered, after trading as high as 56½ earlier in the day.

He saw OPTI's senior paper - the 9% first-lien senior secured notes due 2012 - trading at 100¼ bid, 100½ offered, "the first time I've seen them at a premium" in a long while.

Compton Petroleum drops

Compton Petroleum Finance's 10% notes due 2017 were being quoted down 4 points on the session at 74 bid.

The Calgary, Alta.-based energy company's bonds and shares have slid badly since it announced poor 2010 year-end financial results and reserves data on Feb. 24.

The day before, its bonds had been trading as high as 84 bid, but they had fallen to around 78 at the end of last week and continued to slide further on Monday.

The company's Toronto Stock Exchange-traded shares meanwhile fell to 35 Canadian cents on Monday, down 2 Canadian cents, or 5.80% on the day; since Feb. 23, they have slid 10 Canadian cents per share.

The bonds and shares started dropping after the company revealed a net loss of C$330.85 million, including a C$367 million write-down of assets due to the lower natural gas prices.

Meanwhile, it said that its total proved reserves dwindled by 40% versus year-end 2009, while their value shrank by 48% year over year.

Compton also warned that its proved plus probable reserves were down 48% from a year earlier, with the value of such reserves down 56% from the previous year.

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