Ontario sells C$750 million; Mobilicity, Catalyst notes drop; Home Capital deal in works

By Cristal Cody

Prospect News, April 28 - The pace picked up on Thursday with a C$750 million reopening of the Province of Ontario's 10-year benchmark note, while Home Capital Group Inc. is expected to bring its offering of C$150 million of debentures due 2016 in the low 200 basis point range, according to informed bond sources.

In the high-yield market, the new deal from Canadian wireless carrier Mobilicity was mixed in trading, with the 15% notes due 2018 weaker and the 9.5% notes due 2018 stronger, a bond source said.

High-yield bonds were "very well bid" on the day, the source said.

"With Ford pricing their 5% seven-year deal in the U.S., it pushed Ford bonds in Canada up about a quarter-point," the source added.

Ford Motor Credit Co. sold $1.25 billion of seven-year notes at par to yield 5% on Thursday.

The 4.875% notes due 2014 that Ford Credit Canada Ltd. sold at par on March 8 traded early morning at 100.15 bid, 100.4 offered before rising, according to the source.

Canadian government bonds rallied, sending yields up following U.S. Treasuries. Canada's 10-year bond yield fell 5 basis points to 3.23%. The 30-year bond yield dropped 3 bps to 3.71%.

Treasuries made gains, sending yields down after the government's weak auction of $29 billion of seven-year notes, which only temporarily dampened the market's appetite.

The 10-year note yield dropped 4 bass points to 3.31%. The 30-year bond yield fell 4 bps to 4.41%.

Ontario issues add-on

The Province of Ontario (Aa1/AA-/DBRS: AA) sold C$750 million in a reopening of its 4% benchmark notes due June 2, 2021 at 99.407 to yield 4.072% on Thursday, an informed source said.

The notes priced at a spread of 73 basis points over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

The province previously reopened the issue on April 12 to sell C$750 million of the notes at a spread of 70.5 bps over the government benchmark. The total outstanding now is C$3.75 billion.

Mobilicity notes mixed

Canadian wireless carrier Data & Audio-Visual Enterprises Wireless Inc., also known as Mobilicity, priced C$205 million in two tranches in a high-yield deal that is expected to close on Friday, according to sources.

The deal included C$185 million of 9.5% first-lien senior secured notes due April 29, 2018 priced at par and an add-on of C$20 million of series 2009 15% senior debentures due Sept. 25, 2018, also priced at par.

National Bank Financial Inc. and GMP Securities LP were the bookrunners.

About C$71 million of the proceeds will be used to repay the company's outstanding credit facility and termination costs and for working capital.

In the secondary market, the 15% notes due 2018 traded Thursday at 90 bid, 95 offered, a source said.

The 9.5% notes due April 29, 2018 traded at 100 bid, 102 offered.

Vaughan, Ont.-based Mobilicity is backed by Obelysk, a Canadian holding company, and Quadrangle Capital Partners, a U.S. private-equity firm focused on the telecommunications and media sectors.

Home Capital deal in works

Home Capital Group's offering of C$150 million of debentures due 2016 is talked to price in the low to mid-200 basis point range, according to a source.

The deal is expected to price on Friday or in the week ahead and close on May 2.

The notes will be offered in Canada.

Scotia Capital Inc. is the lead manager. Co-managers include BMO Nesbitt Burns Inc., Desjardins Securities Inc., RBC Dominion Securities Inc. and Cormark Securities Inc.

The proceeds will be used to provide additional capital to Home Trust Co., a subsidiary of Home Capital, to meet regulatory requirements for further growth and for general corporate purposes.

Home Capital Group is a Toronto-based mortgage lender and credit services provider.

OPTI bounce continues

OPTI Canada's bonds, a trader said, were "surprisingly resilient after bad numbers [on Wednesday]." He said there was "a lot of paper trading in the subs [i.e., the company's subordinated issues], but not so much the seniors, which are both still north of 101."

He saw those subordinated bonds - the 7 7/8% notes and 8¼% notes, both due in 2014 - trading in a 531/2-54 context.

He estimated that between $60 million and $70 million bonds traded across OPTI's capital structure on Thursday, terming that "pretty good, considering that the price hasn't moved significantly, which kind of surprised me."

OPTI, a second trader said, "was the big one," seeing the 2014 bonds around 54 bid, a 2-point gain on the day, in contrast to Wednesday, when the bonds slid from the mid-50s down to around 48½ bid in busy dealings, but then came off those lows to end around 52 bid, down around a deuce.

OPTI Canada "pretty much stabilized" on Wednesday, with the bonds moving back up to around the levels they'd held before the company's release of numbers on Wednesday.

The Calgary, Alta.-based oil sands energy producer 's subordinated bonds gyrated wildly at lower levels on Wednesday after OPTI reported its fiscal first-quarter earnings - and although it showed a smaller first-quarter loss versus a year ago (C$27 million, or 9 Canadian cents per share, versus C$41 million in the year-earlier period), it also warned that it likely will not meet its 2011 previously announced production goal of 38,000 to 45,000 barrels of bitumen crude oil per day.

The first trader said, "It's not only a case that they did not meet their [output] targets - for more than a year, they have continuously, on every one of their conference calls, been forced to reduce, or give a reason why they haven't hit their targets.

"Once or twice? OK. Seven or eight times? You start to have to question everything that they do or say."

He further opined that the OPTI subordinated bonds "should actually be trading lower. The fact that they're almost back to where they were the day before is a testament to two things: one, I think there are some pretty large blocks [of bonds] held in a few places that are trying very hard to keep it, with the expectation of [eventually] owning the company; they're going to end up with equity, but that's what they want. This is a 'loan-to-own' kind of a situation."

He said that "there are a lot of people that think that while the oil sands have a value, [OPTI's] ability to extract it is not very strong and that there are better technologies."

The other factor, he continued, "is probably counter-intuitive, but as gas and oil prices rise even more, there are other sources that will be able to kick in because it's affordable to do. Clearly, OPTI is not the best operator in the space, and they've struggled, so I think these [bonds] will kind of drift around here, but it wouldn't surprise me for it to be in the 40s two months from now."

At the same time, he said, the senior secured bonds "are fine to a certain extent," particularly the 9% notes due 2012 currently trading around 101½ bid, 102 offered, while the 9¾% notes due 2013 were at 101 bid, 101½ offered.

Catalyst gets creamed

A trader said that Catalyst Paper Corp.'s 7 3/8% notes due 2014 "were trading a lot," plunging 5 points on the day to 69 bid. Volume was heavy at over $27 million, almost right at the top of the most-actives list.

He meantime saw its 11% senior secured notes due 2016 down 1 point at 99 bid, par offered.

He attributed the slide in the subordinated bonds and the easing in the secureds to the Richmond, B.C.-based paper manufacturer's release of disappointing quarterly numbers.

"I don't know what they were expecting," he said, "but it looks like it was bad."

The bonds fell even though the company actually reported less red ink in the quarter than it had a year ago. In the first quarter ended March 31, Catalyst posted a net loss of C$12.9 million, or 3 Canadian cents per share, on sales $303.6 million. In contrast, a year earlier, the company had a C$44.1 million net loss, or 12 Canadian cents per share, on sales of $273.3 million.

However, while improving from a year ago, Catalyst's numbers deteriorated on a sequential basis from last year's fourth quarter, which had seen a net profit of C$9.6 million, or 2 Canadian cents per share. Sales also fell in the latest quarter from fourth-quarter levels of $333.6 million. The company attributed the sequential slide to a leveling off in paper demand, foreign exchange fluctuations and increased costs.

Catalyst "saw a lot of activity," another trader said, quoting the bonds as having retreated to around 69 bid from 73½ bid, 74 offered on Wednesday, which he called "a nice drop, on the back of their numbers."

Paul Deckelman contributed to this review

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