British Columbia, Ontario wake provincial bond market; Savanna Energy details junk deal

By Cristal Cody

Prospect News, May 11 - The Canadian provincial bond market moved back into the limelight on Wednesday with sales from the Province of Ontario domestically and a $1.5 billion U.S. dollar-denominated deal from the Province of British Columbia.

Other provincial issuers also are expected to be in the U.S. market with bond offerings, one source said.

"Spreads were a little softer on rumors of potential supply," a source said.

Ontario's deal was well received and sold quickly, while the bonds sold on Tuesday from the Province of Manitoba were not as quick to sell, one source said.

Ontario "was the first deal in a while that has gone this well," a provincial bond source said. "The last three or four provincial deals have been slower to sell in general, with the Street left a little long on some bonds after distribution, which has weighed on spreads, but this one was [a] clean burn."

Ontario's reopened bonds widened 0.5 basis points in trading early Wednesday morning on talk of potential supply, then tightened into 84 bps before going out at 84.5 bps, a source said.

The 4.4% bonds due 2042 that the Province of Manitoba sold on Tuesday at a spread of 81 bps traded wider by 0.5 bp to 1 bp, a source said. The bonds (Aa1/AA/DBRS: A) were last seen at 81 bps offered.

"The Street was a little surprised to see them in the market; people were expecting to see Ontario longs," the provincial bond source said.

The Province of Manitoba has about C$2.1 billion remaining in its borrowing program for the year.

In corporate bond activity, more details emerged about the upcoming high-yield offering from Savanna Energy Services Corp., which is expected to sell C$125 million of senior notes due 2018, informed bond market sources said Wednesday.

Canadian bonds were well bid on the day, sending yields down. Canada's 10-year bond yield fell to 3.221% from 3.26%. The 30-year bond yield dropped 4 bps to 3.61%.

In economic data, Canada's trade surplus widened to C$627 million in March from C$356 million in February, Statistics Canada said.

Treasuries rallied as investors moved away from stocks and commodities after the government's solid auction of 10-year notes. The rally sent yields down 4 bps to 6 bps across the bond curve. The 10-year note yield fell 6 bps to 3.15%, and the 30-year bond yield fell to 4.3% from 4.35%.

"Even with a pretty big rally that's happened in the last couple of weeks, demand is still strong," said George Goncalves, strategist at Nomura Securities. "The allocation back into Treasuries was made slightly easier because the auctions provided a liquid opportunity to buy a lot of Treasuries very quickly. Even though they're out there buying our debt and driving yields lower, it tells you there's some skepticism on the evaluation of stocks and commodities."

Stocks dropped in a sell-off on Wednesday with the Dow Jones Industrial Average down 130 points.

British Columbia prices

Across the border, the Province of British Columbia sold $1.5 billion of 2.1% five-year bonds on Wednesday to yield Treasuries plus 25.55 bps, or mid-swaps plus 5 bps, according to an FWP filing with the Securities and Exchange Commission.

The non-callable bonds (Aaa/AAA/AAA) were priced at 99.981 to yield 2.104%.

Bookrunners were Bank of America Merrill Lynch, CIBC and RBC Capital Markets Corp.

Proceeds are being paid into the Consolidated Revenue Fund of British Columbia and possibly used to lend money to British Columbia government bodies.

Ontario adds C$600 million

In a domestic deal, the Province of Ontario (Aa1/AA-/DBRS: AA) sold C$600 million in a reopening of its 4.65% benchmark bonds due June 2, 2041 at 102.706 to yield 4.485%, an informed bond source said.

The bonds priced at a spread of 84.5 bps over the Government of Canada benchmark.

RBC Capital Markets corp. was the bookrunner.

The issue previously was reopened on April 19, with the sale of C$600 million priced at 80.5 bps. The total outstanding now is C$7.35 billion.

Savanna Energy details deal

Additional details about the high-yield deal from Savanna Energy Services emerged on Wednesday. The company is expected to sell C$125 million of senior notes due 2018, informed bond sources said.

The notes were rated B+ by Standard & Poor's and B by DBRS on Wednesday.

The company will hold roadshows in Toronto on Thursday and Montreal on Friday.

TD Securities Inc. and RBC Capital Markets Corp. are the managers.

Proceeds will be used to pay down the bank facility.

The Calgary, Alta.-based company is a drilling and well-servicing provider in the oil and gas industry.

Catalyst sinks 2 points

A trader saw Catalyst Paper Corp.'s 7 3/8% notes due 2014 fall 2 points on the session to 64½ bid, 65½ offered, although there was no fresh negative news seen out on Wednesday about the Vancouver, B.C.-based paper manufacturer.

At another desk, a trader called the Catalyst drop to the 64ish area a 3-point loss on the day.

OPTI Canada flat

Meanwhile, OPTI Canada Inc.'s 8¼% notes due 2014 finished at 51½ bid, 52½ offered, around the same levels the troubled Calgary, Alta.-based oil-sands energy producer's beleaguered paper had traded at during Tuesday's session.

There was no fresh news seen out on the company.

Andrea Heisinger and Paul Deckelman contributed to this review

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