Canadian high yield edges up; Precision Drilling, Ford Credit bonds end session higher

By Cristal Cody

Prospect News, April 27 - Canadian bond markets stayed quiet on Wednesday after a bustle of deals the previous day.

High-yield bonds opened the day flat but ended "up slightly," a source said.

Bonds from Ford Credit Canada Ltd. and Precision Drilling Corp. were up about 1/8 of a point on better earnings reports from Ford Motor Co. and Precision, the source said.

However, that was not the case for OPTI Canada Inc., which announced its first-quarter results.

Though the company posted a narrower loss, it also warned that production would likely not meet previous estimates. As a result, the company's bonds fell at least 2 points on the day.

Canadian government bonds fell, tracking U.S. Treasuries, after the Federal Reserve's policy statement. Canada's 10-year bond yield rose to 3.28% from 3.19%. The 30-year bond yield moved up 6 basis points to 3.74%.

Treasuries sold off early and hung on initial losses after the Federal Reserve lowered its economic growth view and indicated the $600 billion quantitative easing program would run as scheduled through June.

The 10-year note yield rose 5 bps to 3.35%. The 30-year bond yield rose 6 bps to 4.45%.

"We noted a hesitancy on traders to be long on the market right now," a source said, "specifically right around the first of the auction and then the policy statement and then Bernanke's speech."

The Federal Reserve said inflation expectations remain stable but estimates core inflation at 1.3% to 1.6% in 2011, higher than the January estimate of 1% to 1.3%.

Federal Reserve chairman Ben Bernanke held the first ever Fed press conference following a policy statement and said he does not expect a third round of quantitative easing to stimulate the economy.

Precision Drilling higher

Precision Drilling's 6.5% notes due 2019 traded Wednesday at 101.625 bid, 102.125 offered from 101.5 bid, 102 offered the previous day.

The company sold the notes (Ba2/BB+/) on March 10 at par.

Precision Drilling reported first-quarter earnings the previous day of $66 million, or 23 cents per share, compared with earnings of $57 million, or 20 cents per share, a year ago.

Precision is a Calgary, Alta.-based equipment and services provider for the oil and gas industry.

OPTI off with numbers

OPTI Canada's debt dipped in Wednesday trading after the company released its quarterly results.

A trader said the subordinated paper - the 7.875% and 8.25% notes due 2014 - were "pretty active" on the back of the numbers and a "good conference call."

He said the issues were down 2 to 2.5 points, trading with a 52 handle.

The senior issues, he continued, were about unchanged, the 9.75% notes due 2013 around 101 and the 9% notes due 2012 around par.

"Basically, their whole thing is that there is always an excuse for not hitting their numbers," the trader said. "It's always plausible but at some point there can't always be something."

While the bonds "didn't get pounded ridiculously," the numbers and the call were "certainly not creating any warm fuzzy feelings."

Another trader called the bonds down a deuce on "crap numbers," placing the subs around 52 bid, 53 offered, down from 55 previously. He also deemed the seniors unchanged around par.

A third source said the subs fell down to the high-40s, then "bounced back" to around 52, still down 2 points.

The Calgary, Alta.-based oil sands producer reported a narrower first-quarter loss of C$27 million, or 9 cents per share. In the previous year, net loss was C$41 million, or 15 cents per share.

Revenues gained 26% to C$63 million and bitumen production at its Long Lake joint venture with Nexen Inc. rose 36% to 25,5000 barrels per day.

Still, the company warned that it would likely not meet its annual production target.

Another trader saw OPTI's 8.25% notes due 2014 "down quite a bit at the opening," falling to 48½ bid from Tuesday's levels around 54 bid, before coming back up to end at 52-52¼ bid, "a wide range on the day."

Despite the bounce off the early lows, he said the closing level was still down about 2 points on the day.

"It was all on numbers, their prospects, and how long it's going to take to get that thing [i.e., 35% owner OPTI and 65% owner Nexen's joint-venture Long Lake, Alta. plant for extracting the thick, gooey bitumen from the ground and converting it into the more desirable light sweet crude] properly running."

OPTI, another trader said, "was the big dropper in the morning," with "a lot of activity first thing this morning" after the results, characterized by "crummy" production.

He too saw the bonds drop to 48½ from 54, only to come back to 52-53, "so that went on a wild ride today. It probably was the distressed bond of the day."

He said that "it all happened in the morning - I mean really early."

He said there was "real decent volume."

The trader also saw "some activity" in the company's 7.875% notes due 2014, which generally trade in tandem with, and sometimes right on top of, the 8.25s, "but not as much as the 8.25s. There was more action in the 8.25s."

He saw the 7.875s drop to 51-52 from prior levels at 54, "and that's pretty much where they traded all day, but on the other [the 8.25s], there was more action," with the gyrations down to 48½ and then back up.

OPTI's Toronto Stock Exchange-traded shares meantime slid by C$0.04, or 12.28%, on Wednesday to end at C$0.25. Volume of 2.8 million shares was slightly above average.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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