Corporates lower; Cadillac Fairview, Korea Gas flat, OPTI up, Bank of America down on week

By Cristal Cody

Prospect News, May 6 - Canadian corporate bonds ended the week about 2 basis points weaker overall, though bonds firmed a basis point on Friday, according to sources.

"The tone of the market on Friday helped us out a little bit," a source said. "Canada was hard hit, mostly on the equities side because of commodities price weakness. The negative sentiment carried over into corporates. They were softer by 3 to 4 [bps] and revised today, ending out a couple on the week."

The only two corporate deals priced in Canada over the week - from Cadillac Fairview Financing Trust and Korea Gas Corp. - traded Friday "around new issue spread," one source said, noting it was a "pretty dead week."

Cadillac Fairview Financing Trust (AAA/DBRS: AAA) sold an upsized C$600 million - increased from C$500 million - of 3.64% series C debentures due May 9, 2018 at a spread of 81 bps over the Canadian bond curve, or 80.1 bps over the government benchmark. The trust is the primary real estate funding vehicle of the Ontario Teachers' Pension Plan Board.

Korea Gas (A1/A/A+) priced C$300 million 4.58% senior Maple bonds due May 12, 2016 at a spread of 203 bps over the Canadian bond curve. Korea Gas is a public natural gas company incorporated by the Korean government.

Financial bonds ended the week a little softer, while Bank of America's five-year fixed-floating-rate note stayed weak at 94.00, down C$6 to C$7 on the week after the company said it would not call the bond on the first call date, according to a source.

In other trading, OPTI Canada Inc. was also slightly better after losing ground in the previous session. There was no news out on OPTI either, but traders did speculate that the rally was tied to the fluctuating price of oil.

Government bonds mixed

Canadian government bonds fell following U.S. Treasuries as traders didn't want to be caught short going into the weekend. The 10-year bond yield rose to 3.194% from 3.19%, and the 30-year bond yield climbed to 3.583% from 3.57%.

"There is a meeting in Europe and rumors that there could be a Greek restructuring, so that played around a bit with bonds," a source said.

Treasuries closed mixed on Friday, with bonds on the short end of the curve up and longer-dated bonds down 2 bps.

The two-year note yield fell 2 bps to 0.55%. The 10-year benchmark Treasury note yield was flat at 3.15%, while the 30-year bond yield rose 2 bps to 4.28%.

Treasury prices fell earlier in the day after the Labor Department said 268,000 jobs were added in April, with a jump in the manufacturing sector. The unemployment rate rose to 9% from 8.8% the previous month.

Bank of America holds

Bank of America confirmed on Wednesday to Prospect News that the bank would not call the 4.81% subordinated fixed-floating-rate notes due 2016 on June 1. The notes had been trading slightly above par until Monday when a notice was not released.

Investors in Bank of America's bonds continued to show dissatisfaction with the company's decision to not call the bond. Trading activity, however, was muted and the bond has "held in pretty well," a source said.

Concerning the Bank of America issue, "there is a bid out there around 96.00, 97.00, but it seems to fall away after that with the next support level being 94.00," the source said.

OPTI subs rally

OPTI Canada's subordinated debt popped back up after losing steam late in Thursday's trading session.

One trader said the notes - the 7 7/8% and 8¼% notes both due 2014 - were better in the wake of higher oil prices, quoting the notes at 52¼ bid, 52½ offered.

However, by the end of the day, oil closed down $2.03 to end at $97.77, after trading near neutral for most of the day.

At another shop, a trader echoed that 52¼ bid, 52½ offered market, also calling the debt "a little bit better."

However, a third trader said the paper was "basically in line" with Thursday's close at 51 bid, 52 offered.

Another trader saw OPTI's 7 7/8% notes and 8¼ % notes trading around 52-521/2, which he called ½ point weaker, on "moderate trading, not a lot."

He did not see any fresh news out on the troubled Calgary, Alta.-based oil-sands energy producer

Rumor has it that New Delhi, India-based energy explorer Oil and Natural Gas Corp. is in talks to partner with a Canadian oil-sands producer. Though it is considered a long shot, Calgary, Alta.-based OPTI is one name that is being thrown around.

Catalyst paper struggles

Meanwhile, Catalyst Paper Corp. "did not have as good a day," with the Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014 in a 66 to 67 range, which a trader called pretty much where they were previously, on "not much activity."

The source did see the bonds trade as high as 68 earlier in the day before coming back down to a 66-67 range later, "so they're hanging out at their lower levels, on not much volume at all."

However, at another desk, a market source saw the bonds finishing the day at 68½ bid, which he called up 1½ points on the day.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
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