Markets cool ahead of long weekend; Connacher prices; Paramount flat, OPTI, Nortel up

By Cristal Cody

Prospect News, May 20 - Canadian bond markets closed early Friday ahead of the holiday weekend while activity stayed at a minimum after a week of heavy corporate and provincial issuance, according to sources.

"Dead," one trader said. "Everybody's gone home."

The bond markets will be closed on Monday for the Victoria Day holiday.

But one Canadian company did bring a deal on Friday. Connacher Oil & Gas Ltd. priced about $911 million equivalent of senior secured notes (Caa2/BB-) in Canadian dollar- and U.S. dollar-denominated tranches, according to an informed source.

In the secondary market, Paramount Resources Ltd.'s bonds traded mostly flat after the company reported lower first-quarter earnings this week.

Also in the secondary, OPTI Canada Inc.'s paper traded higher after the company released its latest production report from its Long Lake project. The report showed an increase in the amount of barrels per day that are produced, though the figures were still well below the 2011 production target.

Nortel Networks Corp.'s debt also closed higher, though there was no news out to act as a catalyst.

Speaking of which, Catalyst Paper Corp.'s notes also continued to languish.

Government bonds rose on softer economic data Friday. Statistics Canada said retail sales were flat in March at C$37.3 billion with the largest decline seen in furniture and home furnishings stores. In a separate report, the agency said consumer prices rose 3.3% in April on a jump in energy and gasoline prices.

Canada's 10-year bond yield fell to 3.14% from 3.19%, and the 30-year bond yield dropped 2 basis points to 3.56%.

Also, bonds were impacted by renewed overseas fears after Fitch Ratings lowered its rating on Greece further into junk territory.

"Worries over Spain having a larger deficit and Greek restructuring kind of combined to lift the market today," a bond source said. "Basically it was a slow day."

U.S. Treasuries also were lifted, sending the benchmark 10-year Treasury note yield down 3 bps to 3.14%.

Connacher taps market

The deal from Connacher Oil & Gas included a $550 million tranche of notes due Aug. 1, 2019, which priced at par to yield 8.5%.

The yield printed 12.5 bps beyond the wide end of the price talk, which had been set in the 8.25% area.

Credit Suisse Securities (USA) LLC was the left lead bookrunner.

Connacher also priced a C$350 million tranche of notes due Aug. 1, 2018 par to yield 8.75%.

Again, the yield printed 12.5 bps beyond the wide end of price talk, which was set in the 8.5% area.

RBC Capital Markets was the left lead bookrunner for the Canadian dollar-denominated tranche.

Credit Suisse and RBC were the global coordinators and joint bookrunners for the deal, the overall size of which was slightly increased from $900 million equivalent.

The notes are secured by a second-priority lien on all of the existing and acquired property of the issuer and each restricted subsidiary of the issuer.

The Calgary, Alta.-based integrated oil company plans to use the proceeds to refinance its existing first-lien and second-lien notes.

Paramount flat

Paramount Resources' 8.25% senior notes due Dec. 13, 2017 were seen ending the week at 103.75 bid, 104.75 offered, slightly higher than the previous week, according to a bond source. The notes (Caa2/B+) traded at 103.5, 104.5 on May 13.

The company sold a C$70 million add-on to the bonds on Jan. 28 at 103 and originally priced C$300 million of the notes at par on Nov. 30, 2010.

Paramount reported on Tuesday a first-quarter loss of C$11.9 million, compared to a gain of C$26.9 million in the year-ago period.

Calgary, Alta.-based Paramount Resources is an oil and natural gas exploration, development and production company.

OPTI bonds boosted

OPTI Canada's debt traded higher after the company published a production report on its Long Lake joint venture project.

However, a trader noted that the bonds saw "very, very light trading," much like the rest of the distressed space.

The trader quoted the 7.875% and 8.25% notes due 2014 at 47 bid, 48 offered, the 9% notes due 2012 at par ¾ bid, 101¼ offered and the 9.75% notes due 2013 at par bid, par ½ offered.

Another trader also deemed the subordinated paper "a little bit better" at 47 bid, 48 offered.

The Calgary, Alta.-based oil-sands producer said bitumen production at its Long Lake project - which it owns in tandem with Nexen Inc. - increased to 28,300 barrels per day, 9,900 barrels per day of which goes to OPTI.

In February, production was 23,100 barrels each day, with 8,100 barrels making up OPTI's portion. That was down from January's 27,000 barrels per day, 9,450 barrels per day of which was OPTI's take.

The company has previously said it would not make its 2011 production target of 38,000 to 45,000 barrels per day.

Nortel inches up

A trader said there was "a little action" in Nortel Networks' bonds, though there was no news out on the Toronto-based telecommunications company.

He said both the 10.125% notes due 2013 and the 10.75% notes due 2016 moved up a point to 92½ bid, 93 offered.

The bankrupt company is auctioning off its patent portfolio, which consists of more than 6,000 patents. Google Inc. has made the initial $900 million bid, and as more parties express interest - Ericsson is the latest to reportedly be considering making an offer - the higher the price is expected to go.

Market watchers have already predicted that the price could easily climb to $1 billion or more.

Catalyst down

Catalyst Paper's 7.375% notes due 2014 continued to languish in the mid-50s, at 56 bid, 58 offered, a source said.

The Richmond, B.C.-based paper manufacturer's secured 11% notes due 2015 ended at 93 bid, 95 offered.

Another source, though, estimated the 7.375s down more than 2 points on the day to end at 561/2.

Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo contributed to this review

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