Provincial deal gate opens; preferred sale wrapped; North American Energy bonds drop

By Cristal Cody

Prospect News, May 18 - In the Canadian provincial bond market on Wednesday, investors had their choice of deals.

New issues were priced from Canada Housing Trust, the Province of Ontario and the Province of Quebec, as well as Kommunalbanken Norway, which brought a Maple bond deal. Also, Shaw Communications Inc. sold C$200 million of five-year preferred stock.

In other sales, the provinces of Alberta and Ontario brought floating-rate note offerings on Wednesday. Complete details were not immediately available.

"There was a good bid to provincial bonds and a lot of issuance, just north of C$8 billion of issuance today," a provincial bond source said.

In other bond activity, North American Energy Partners Inc.'s bonds dropped 5 points after the announcement that profit will fall C$30 million to C$34 million due to a write-down of C$40 million to C$45 million for the fiscal year ended March 31 from a contract with subsidiary oil company Canadian Natural Resources Ltd.

Canada's high-yield market was going out on the day a "little bit weaker," an informed source said.

Government bonds fell, sending yields up, following U.S. Treasuries. Canada's 10-year bond yield rose to 3.22% from 3.17%. The 30-year bond yield rose 4 basis points to 3.6%.

"From 8:30 (a.m.) on, bonds started selling off and just kept selling off throughout the day, basically a reversal of what we saw yesterday," a Canadian bond source said.

Treasuries sold off on Wednesday, sending yields up, after the release of the Federal Open Market Committee's minutes. The 10-year note yield jumped 7 bps to 3.18%, and the 30-year bond yield also climbed 7 bps to 4.29%.

"The rubber band stretched a little far; now we're feeling the snapback," said Guy LeBas, chief fixed income strategist with Janney Montgomery Scott. "Today's move was significant. We think it will be the catalyst; we see the 10-year at 3.45% to 3.5% at the end of June."

Canada Housing prices

Canada Housing Trust (Aaa/AAA/DBRS: AAA) raised C$4.75 billion from the sale of new five-year floating-rate notes and a reopening of its 10-year bonds on Wednesday, an informed bond source said.

The floating-rate notes drew particular interest, a source said.

"Orders were well north of C$5 billion. It allowed us to tighten that spread in," the source said.

The trust sold C$2.5 billion, upsized from C$2 billion, of the floating-rate notes due September 2016 at three-month CDOR plus 5 bps, compared to talk in the 6 bps area.

Canada Housing Trust also sold C$2.25 billion in a reopening of 3.8% 10-year mortgage bonds at 35 bps over the Government of Canada benchmark bond. The bonds originally priced on Feb. 16 at a spread of 28 bps.

TD Securities Inc. was the lead manager.

Canada Housing Trust is a unit of Canada Mortgage Housing Corp., which offers financing, mortgage loan insurance, mortgage-backed securities and other services.

Ontario reopens long bonds

The Province of Ontario (Aa1/AA-/DBRS: AA) sold C$600 million in a reopening of the 4.65% benchmark bonds due June 2, 2041 at a spread of 84.5 bps over the Government of Canada benchmark on Wednesday, an informed bond source said.

TD Securities Inc. was the bookrunner.

In the secondary market, the bonds were quoted at 84 bps bid, the source said.

The issue previously was reopened on May 11 with the sale of C$600 million priced at a spread of 84.5 bps.

Quebec sells C$550 million

In another provincial offering, Quebec (Aa2/A+/DBRS: A) sold C$550 million in an add-on to its 5% bonds due Dec. 1, 2041 at 91 bps over Canada's government benchmark, an informed source said Wednesday.

In secondary trading, the bonds narrowed 1 bp to a spread of 90 bps, the source said.

The bonds were previously reopened on March 23 at a spread of 82.5 bps versus the Government of Canada benchmark.

Kommunalbanken taps market

Canada saw a Maple bond deal from Kommunalbanken Norway, which sold C$275 million of 3.74% 10-year fixed-to-floating rate notes (Aaa/AAA/) on Wednesday at 99.973 to yield 3.746%, an informed bond source said.

The Maple bonds due May 27, 2021 priced at a spread of 123 bps over the Canadian government benchmark, compared to talk of 125 bps plus or minus 2 bps.

The deal was upsized from C$250 million.

The notes are callable after five years.

National Bank Financial Inc. and RBC Capital Markets Corp. were the lead managers.

Kommunalbanken Norway is a state-owned local government funding agency.

Shaw sells preferreds

Also in Canada, Shaw Communications announced that it sold C$200 million, or 8 million shares, of cumulative redeemable rate reset preferred shares.

The series A preferred stock (DBRS: Pfd-3) priced at C$25.00 per share and pay a 4.5% dividend for the initial period ending June 30, 2016. Thereafter the dividend rate will be reset every five years at a rate equal to the then current five-year Government of Canada bond yield plus 200 bps.

TD Securities Inc. and CIBC World Markets Inc. were the lead managers.

The deal includes an over-allotment option of 2 million shares, or C$50 million.

The proceeds will be used for working capital and general corporate purposes.

Calgary, Alta.-based Shaw Communications is a telecommunications, cable and internet provider.

North American Energy drops

In secondary trading, North American Energy's 9.125% debentures due 2017 fell 5 points to 102 bid, 104 offered, a high-yield bond source said Wednesday afternoon.

"There's lots of selling in that bond. There's no buyers," the source said. "It's really slid."

North American Energy Partners is an Alberta-based provider of heavy construction, mining and pipeline services in Canada.

Catalyst flat

Also in trading, Catalyst Paper Corp.'s 7.375% 2014s stayed in the 59-61 area on Wednesday, a source said. The Richmond, B.C.-based papermaker's notes were flat from the previous day.

OPTI Canada down

OPTI Canada Inc.'s 8.25% notes due 2014 traded at 46 bid, 47 offered, and the 7.875% notes due 2014 were down ½ point at 45½ bid, 46½ offered, a source said.

The Calgary, Alta.-based oil-sands producer's bonds have declined since it released another disappointing earnings report in mid-April.

Paul Deckelman contributed to this review

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