Armtec, Flint, Savanna Energy weaker, Air Canada bonds hold; Sino-Forest takes back seat

By Cristal Cody

Prospect News, June 10 - Canadian high-yield bonds ended the week weaker for the most part, according to informed bond sources.

Some bonds have held in, including Air Canada's bonds despite a potential strike on Monday.

Armtec Infrastructure Inc.'s stocks and bonds fell again on Friday, a day after the company announced a wider-than-expected first-quarter loss and that it had suspended its dividend. In addition on Friday, ratings agency DBRS said it placed the BB (low) issuer rating and the BB senior bond ratings of subsidiary Armtec Holdings Ltd. under review with negative implications.

Armtec's bonds have dropped 8 points since the previous week, a source said.

In other Canadian high-yield trading, "a lot of the high-yield deals that came are trading lower," one bond source said. "Flint Energy, Connacher, Savannah, all those high-yield deals are trading down from where they came 50 cents to a dollar."

Despite the overall softer market, OPTI Canada Inc.'s paper managed to stage a 3-point rally, traders reported. There was no fresh news out on the company, but there is a coupon looming in the June 13 week, and the market is wondering if the payment will be made.

In forest-products related names, Sino-Forest Corp. activity quieted down just over a week after the company's debt - and stock - began a major decline based on allegations of fraud by short-seller Carson Block.

Canada's government bonds were mostly positive on jobs data. The 10-year bond yield rose 2 basis points to 3%. The 30-year bond yield fell to 3.479% from 3.51%.

"We saw a sharp rise in risk aversion," a government bond source said. "Our bonds are closing higher in price lower in yield, essentially piggybacking off the U.S. We did have a decent employment report in Canada but some of the underlying details weren't as positive."

Statistics Canada said Friday the unemployment rate fell to 7.4% in May from 7.6% the previous month on the addition of 22,000 jobs.

Air Canada unchanged

Air Canada's 10.125% bonds due Aug. 1, 2015 traded Friday at 104.25 bid, 106.25 offered, unchanged from Wednesday, according to a bond source.

The Canadian Auto Workers union has said members could walk off the job at Air Canada on Monday over changes to pension benefits.

Saint-Laurent-based Air Canada provides airline services in Canada and to destinations in 181 countries.

Armtec weaker

Armtec Holdings' 8.875% senior unsecured notes due Sept. 22, 2017 traded Friday at 94.375 bid, 96.375 offered, down from 100.25 bid, 102.25 offered before the earnings release, a bond source said.

The company priced C$150 million of the seven-year notes (/B//DBRS: BB) on Sept. 15, 2010 at par.

Parent company Armtec on Thursday reported a wider-than-expected loss of C$13.3 million, compared to a loss of C$10.6 million in the year-ago period.

Armtec's stock plunged 60% to C$4.35 on the Toronto Stock Exchange and fell another 20% on Friday to C$3.53.

The company also suspended until further notice its quarterly dividend.

Armtec is a Guelph, Ont.-based manufacturer and marketer of industrial infrastructure products and engineered construction solutions.

Flint Energy down

Flint Energy Services Ltd.'s 7.5% notes due 2019 (B2/BB-) traded Friday at 98.5 bid, 99.5 offered, according to an informed bond source. The company sold C$175 million of the eight-year senior notes at 99.00 on May 25.

Flint Energy is a Calgary, Alta.-based provider of products and services to the oil and gas industries.

Savanna Energy falls

Savanna Energy Services Corp.'s 7% notes due May 25, 2018 dropped to 99.5 bid, 100.5 offered on Friday, a bond source said.

The company priced C$125 million senior notes at par on May 19.

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

Sino action quiets

A trader said there was "not much action" in Sino-Forest's debt on Friday.

The trader saw the 10¼% notes due 2014 move up to 663/4, which he deemed up nearly a point.

Another trader, however, said the 4¼% convertible notes due 2016 and the 5% convertible notes due 2013 traded "down a couple points" to 50 bid, 52 offered.

"I didn't see much of anything in them," he said.

RBC Capital Markets came out in favor of the Hong-Kong and Mississauga, Ont.-based timber company Friday and attempted to cast doubt upon the controversial June 2 research report published by Muddy Waters Research.

Sino-Forest will release its earnings on Tuesday.

Another trader saw the battered bonds of Sino-Forest continuing to gyrate on Friday, more than a week after the Canadian-Chinese timber company's bonds and shares were rocked by a harshly critical research report put out by Muddy Waters LLC, an investment firm headed by short-seller Carson Block.

In Friday's dealings, the trader said that the company's 10¼% notes due 2014 were down 1 point on the day at 65 bid, although its 6¼% notes due 2017 were up 3 points to end at 591/4.

He also saw its shortest-dated issue - the $87 million of 9¼% notes slated to come due on Aug. 17 - trading at 92, an extremely low price for a piece of paper that is scheduled for redemption so soon. "If you own that [issue], it's going to be a sweaty next two months," he observed.

The 2017 bonds were trading around 94 and the other paper above par as recently as June 1, before the devastating report from Muddy Waters alleging all kinds of financial chicanery and even at one point invoking the name of disgraced financier Bernard Madoff as a comparison, was made public.

Management of the company vehemently denied the allegations and noted that Block and his company stand to make substantial amounts of money by driving the company's share price down. Sino-Forest has called for authorities in Canada, where the company has headquarters in Mississauga, Ont., and where its shares trade on the Toronto Stock Exchange, to investigate Muddy Waters.

Those shares, along with the bonds, have shown wild volatility, hammered down by investor reaction to the initial report, then recovering some of those losses after a detailed company rebuttal of the charges and commissioning an independent assessment of its finances by PriceWaterhouseCoopers, only to fall again after Moody's Investors Service warned that it was considering a downgrade in the company's credit ratings.

On Friday, the shares - which have lost more than three-quarters of their value from the C$18.21 level they stood at on June 1, the day before the report surfaced - were down another 68 cents on the day, or 13.20%, to close at C$4.47, their lowest level of the session. Volume of 18.6 million shares was more than five times the norm.

OPTI debt stages rally

OPTI Canada's subordinated debt "rebounded," a trader said.

"It just seemed like a [general] rebound," he said. "They have been trading down a lot lately."

He placed the 7 7/8% and 8¼% notes due 2014 at around the 46 mark.

Another trader said the 8¼% notes "popped up" 3 points to the 46 level, while the 7 7/8% note also gained 3 points to close around 453/4.

As previously reported, Friday is the record date for the upcoming coupon on the subordinated paper on June 15. With all of the operational issues OPTI has been experiencing at its Long Lake joint venture project with Nexen Inc. - which have in turn pressured the company's overall financial health - the market is speculating on whether or not the payment will get made.

The bonds are next callable on Dec. 15 at $102.06.

OPTI is a Calgary, Alta.-based oil-sands producer.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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