Ontario, Korea Gas bring deals; Bank of America 4.81% notes weaken on failure to call

By Cristal Cody

Prospect News, May 3 - Korea Gas Corp. sold its first Canadian bond offering on Tuesday, while the Province of Ontario sold $3 billion of 2.3% five-year global notes in the U.S. markets.

In other activity, Bank of America's Canadian bonds continued to trade lower on the buzz it will not call its C$500 million of 4.81% subordinated notes due 2016 on June 1, as previously reported by Prospect News. After the call date, the bonds will revert to a floating rate of CDOR plus 60 basis points.

"They are C$4 to C$6 lower in price," a source said Tuesday. "They were trading at par."

Bank of America representatives did not return a call for comment.

"People are trying to wait and see if this is a temporary measure, if the bank is going to call them later on," the source said. "It's the general opinion here that Bank of America has lost the ability to issue a 5-plus-5 [fixed-floater] structure and price it to the first call date. Those were always priced to the short date, not the long date."

Bank of America's other Canadian bonds also widened.

In secondary trading, the first Korean bond deal priced in Canada tightened on the bid side, a source said.

Also in the energy realm, OPTI Canada Inc.'s subordinated debt was still holding its ground.

"Generally spreads here today were pretty quiet," a source said. "We didn't see a lot of trading activity."

Canadian government bonds ended slightly up. The 10-year bond yield fell to 3.157% from 3.18%. The 30-year bond yield fell to 3.636% from 3.67%.

Treasuries ended with moderate gains sending yields down 3 bps to 4 bps on the longer end of the curve as stocks dropped and global worries kicked in. The 10-year benchmark note yield dropped 4 bps to 3.24%, and the 30-year bond yield fell 3 bps to 4.35%.

"We received some weaker-than-expected global economic news this morning, and the markets are volatile in front of the major economic news coming out later this week, culminating on Friday with the release of employment and payrolls data," one source said.

India raised its rates by 50 bps, double what was expected, to 7.25% in an effort to tame inflation. Australia left rates unchanged at 4.75%.

Korea Gas sells C$300 million

In the only corporate deal priced in Canada on Tuesday, Korea Gas (A1/A/A+) sold C$300 million of 4.58% senior Maple bonds due May 12, 2016 at 99.978 to yield 4.585%, an informed bond source said.

"It's the first time for a Korean issuer here in Canada," another source said, noting a "reasonably good response" to the deal

The company priced the bonds at a spread of 203 bps over the Canadian bond curve, compared to price talk of 205 bps.

The deal was upsized from C$250 million.

The bonds were offered in Canada and under Regulation S.

Merrill Lynch, HSBC Capital (Canada) Inc. and Scotia Capital Inc. were the lead managers.

The deal was seen in the secondary market at 199 bps bid, a source said.

Korea Gas is a public natural gas company incorporated by the Korean government.

Ontario sells $3 billion

In a U.S. dollar-denominated deal, the Province of Ontario sold $3 billion of 2.3% five-year global notes to yield Treasuries plus 39 bps, or mid-swaps plus 20 bps, said a syndicate source.

The notes were priced in line with talk of mid-swaps plus 20 bps.

The notes (Aa1/AA-) priced at 99.803 to yield 2.342%. They are non-callable.

Bookrunners were Credit Suisse Securities LLC, Goldman Sachs & Co., Merrill Lynch and RBC Capital Markets Corp.

OPTI bonds stabilize

OPTI Canada's subordinated paper - the 7 7/8% and 8¼% notes due 2014 - were still seen holding in around the 53 mark, traders reported.

One trader said the level was "kind of unchanged," while another said it was "not all that different, maybe a little bit lower."

The bonds have been stable at these levels since last week when the Calgary, Alta.-based oil-sands producer said it would likely miss its 2011 production target.

Catalyst sees slight activity

Meanwhile, light activity was seen in Catalyst Paper Corp. bonds.

A trader said that he "couldn't even recall seeing Catalyst - I'd be shocked if there was any activity in it."

On second look, he did see the Richmond, B.C.-based paper manufacturer's 7.375% notes due 2014 at 69 bid, 70 offered, around Monday's closing levels. There was "modest trading, just a couple of trades but not much."

A second market source, on the other hand, did see a 1-point gain in those bonds, to the 70 bid level.

Andrea Heisinger, Paul Deckelman and Stephanie N. Rotondo contributed to this review

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