Canada Housing sells C$6 billion add-on; shaky market keeps issuers at bay; Armtec flat

By Cristal Cody

Prospect News, June 15 - Canada Housing Trust was the lone reported issuer in the Canadian bond market on Wednesday with a C$6 billion reopening of its five-year bonds, bond sources said Wednesday.

"It came right on guidance," a provincial bond source said. "It was pre-sold and marketed yesterday and all spoken for. The housing bonds normally sell out very well."

In Canada's investment-grade bond market, spreads widened and "nobody attempted the impossible today," an informed bond source said of new issuance. "It's pretty ugly. We've got CMBs [Canada mortgage bonds], but that's basically government, which is not surprising that it went well."

Even financial institutions with a great credit rating would be unlikely to venture into Wednesday's market, the source said.

"I think they will sit tight until we get a little bit of stability," the high-grade syndicate bond source said. "One day, we're risk-on, and the next day, it's off again. Investors will be quite cautious and need more than 24 hours of global stability before they jump back in."

Still, with two days left in the week, it's not impossible a deal or two might price, the source said.

In Canada's high-yield market, "it's a little shaky right now," an informed bond source said. "Everybody's taken a bit of a breather, but there still seems to be liquidity out there. There may be more caution, but it's no different than high-grade."

Secondary mixed

In secondary trading, the fall in Armtec Holdings Ltd.'s bonds may finally be sliding to a stop, with the company's bonds trading Wednesday unchanged from the previous day, according to an informed source.

OPTI Canada Inc. announced late Tuesday that it would not make a coupon payment on its subordinated debt that was coming due Wednesday. As a result, the bonds were trading softer and without accrued interest.

Canadian government bonds rallied, tracking U.S. Treasuries on a round of weak economic data across both borders and a risk-aversion bid sparked by protests in Greece.

In economic data, Statistics Canada said manufacturing sales fell 1.3% in April to C$46.7 billion on a decline in the transportation equipment sector.

"Stocks have been weak," a Canadian government bond source said. "It was risk-on yesterday, risk-off today. The economic data in the U.S. today was worse than expected. It was a damper for stocks and positive for bonds."

Canada's 10-year bond yield dropped to 2.95% from 3.06%. The 30-year bond yield dropped to 3.42% from 3.51%.

Canada auctioned C$3.5 billion of 2% government bonds due Aug. 1, 2013 to good demand on Wednesday.

"It's the new two-year benchmark; there's usually good demand," the government bond source said.

U.S. Treasuries rallied on the weaker economic data, sending yields back about 10 basis points across the curve. The benchmark 10-year Treasury note yield fell 13 bps to 2.97%, and the 30-year bond yield dropped 10 bps to 4.2%.

Canada Housing prices

Canada Housing Trust priced C$6 billion in a reopening of its bonds due June 15, 2016 at 100.934 to yield 2.549%, bond sources said Wednesday.

The bonds (Aaa/AAA/DBRS: AAA) were launched on Tuesday and priced in line with guidance at a spread of 25 bps over the Government of Canada benchmark.

CIBC World Markets Inc. was the lead manager. Co-managers were BMO Capital Markets Corp., RBC Capital Markets Corp. and TD Securities Inc.

Canada Housing originally sold C$6.25 billion of the paper on March 17 at 99.881 to yield 2.775%, or a spread of 26.5 bps over the government benchmark.

Canada Housing Trust is a unit of Canada Mortgage and Housing Corp. Canada Mortgage and Housing is a major provider of mortgage loan insurance, mortgage-backed securities and housing finance programs.

Armtec holds

On Wednesday, Armtec's 8.875% senior notes due Sept. 22, 2017 were quoted unchanged at 90 bid, 94 offered from the previous day, a high-yield bond source said.

The bonds were quoted on Monday at 93.5 bid, 95.5 offered.

Armtec's stock fell and debt weakened after it reported lower first-quarter earnings, suspended its quarterly dividend and received lowered credit ratings from Standard & Poor's and DBRS.

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

OPTI sags on skipped coupon

OPTI Canada's subordinated paper was down a point or so - though also trading flat of accrued interest - after the company said it would note make its June 15 coupon payment.

The trader pegged the 7 7/8% and 8¼% notes due 2014 at 44 bid, 44½ offered. The bonds had been trading around 46 previously, and the trader noted that the interest was "worth almost 3 points."

The Calgary, Alta.-based oil-sands producer said late Tuesday that it was skipping the $71 million payment on the subordinated issues, though it did intend to make a $24 million payment on its 9% first-lien notes due 2012.

The company has 30 days to make the payment on the subs or else it will be in default.

As of June 15, OPTI had C$220 million in cash and equivalents, the company said in a statement. There is also $73 million available in an interest reserve account.

OPTI said it was continuing to work with Lazard Freres & Co. LLC, Scotia Waterous Inc. and TD Securities Inc. to develop a strategic plan to deal with its overleveraged balance sheet.

Sino-Forest quiet

A trader saw little in the way of dealings in the recently volatile bonds of Sino-Forest Corp., which had risen a little on Tuesday after the Canadian-Chinese timber company released first-quarter results pretty much in line with market expectations - it swung to a net loss in the latest period, versus a year-earlier profit.

The company continued to defend itself against a recent research report's allegations that Sino-Forest's business model was unsustainable and its accounting fraudulent.

He said "not enough" of the 6¼% notes due 2017 traded to be meaningful, while seeing its 10¼% notes due 2014 up 2 points at 70 bid on "one trade" of any size.

A market source at another desk, while seeing the bonds at 70, pronounced them actually down 1 point on the day - and noted that after that trade, there had been several smaller trades dropping levels as low as 66 bid, though without the size needed to make them meaningful.

Sino-Forest "seemed quiet," yet another trader said, pegging the 9 1/8% notes slated to come due on Aug. 15 at 90 bid, the 101/4s at 63 bid, 64 offered and the 61/4s at 52 bid, 55 offered, which he said was about where they had been.

"Maybe the converts were down a couple," he said, seeing the 5% notes due 2013 at a wide 54-58 context, and the 4¼% notes due 2016 at 46 bid, 48 offered, "down a couple on the converts."

The company's Toronto Stock Exchange-traded shares, meanwhile - which have dropped by more than 80% since the June 2 publication of the scathingly critical research report by short-seller firm Muddy Waters LLC, despite company denials of the allegations contained therein - fell by another 15% in intra-day dealings before finally closing down 14 Canadian cents on the day, or 4.17%, to end at C$3.22. The shares had traded at C$18.21 on June 1, the day before the report was unveiled.

Wednesday's volume of 4.3 million shares was more than five times the norm.

Catalyst down

A trader also said that Catalyst Paper Corp. "was also down, definitely, though on not as much volume" as the notes from U.S. peer NewPage Corp.

He saw the Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014 fall 1 or 2 points to end at 58 bid, 59 offered, while its 11% senior secured notes due 2016 eased a point or two to 88½ bid, 89½ offered, from previous levels in a 90-91 context.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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