Ccarat II sells C$540.82 million in five tranches; Videotron, Union Gas bonds trade higher

By Cristal Cody

Prospect News, June 17 - A better market tone in Canada helped the Canadian Capital Auto Receivables Asset Trust II wrap its sale of C$540.82 million in auto loan receivables-backed notes on Friday, according to an informed bond source.

The high-grade market widened overall 2 basis points to 3 bps over the week but saw a better tone the last two days when issuers came with three deals, one source said.

The week ahead is expected to have moderate new issuance, according to a source.

"We're not going to see a lot of risk names," the source said.

Secondary volume has stayed light over the week as problems with Greece and weaker U.S. data reports drew attention.

Over the past couple of days, the tone was poor, but there wasn't massive selling, an informed bond source said.

"Spreads widened, U.S. bank bonds were wider up here and some of our telcos and cables leaked wider," a bond source said. "Canadian banks were flat, telcos were out 5 [bps] on the week and U.S. banks were 10 [bps] wider on the week."

In the secondary market, the new 6 7/8% senior notes due July 15, 2021 that Videotron Ltd. (Ba1/BB/) priced the precious day traded higher on Friday, an informed bond source said.

"High-yield is better bid," the source said.

Friday's market tone was "OK but not great," according to a trader from a high-yield mutual fund.

"Heading into the weekend people are trying to be flat," the trader added.

Pressed to parse the week's primary market news for themes, the trader pointed to two items - a $1.6 billion outflow from the high-yield mutual funds during the week to Wednesday, as reported by Lipper-AMG, and a flight to quality.

As to the outflow, it did not take junk players by surprise, the trader insisted.

"The Street was feeling it all week, and had priced it in," the source said, and asserted that most of the negative flows could be chalked up to "retail" as opposed to "institutional" cash.

As to the flight to quality, the trader pointed to Videotron's deal.

"It was a highly rated deal that came in an upsized drive-by, and priced at price talk," the trader pointed out. "It shows that for quality deals people still have plenty of cash to put to work. We think that the market will continue to be open for deals like that."

On the investment-grade side in Canada, Union Gas Ltd.'s 4.88% medium-term debentures due June 21, 2041 sold on Thursday also traded higher, an investment-grade bond source said.

In other news, OPTI Canada Inc.'s bonds were unchanged to softer. The company said earlier in the week that it would not make a coupon on its subordinated debt, though it did intend to pay the interest on its senior notes.

Canadian government bonds edged higher. The 10-year bond yield fell 1 bp to 2.94%. The 30-year bond yield dropped 2 bps to 3.39%.

Ccarat II taps market

In the day's only new deal, the Canadian Capital Auto Receivables Asset Trust II priced C$540.82 million in three tranches of auto loan receivables-backed notes (DBRS: AAA) and two subordinated issues on Friday, an informed bond source said.

In the first tranche of series 2011-2 A1 notes due July 17, 2013, the trust priced C$230 million at par to yield 1.681%, or a spread of 60 bps over the Government of Canada benchmark.

The trust sold C$165 million in the A2 tranche due Dec. 17, 2014 at par to yield 2.179%, or a spread of 70 bps over the government benchmark.

In the A3 tranche, the trust sold C$129.32 million of notes due Oct. 17, 2016 at par to yield 2.773%, or a spread of 92 bps over the government benchmark.

The trust also sold two subordinate tranches, including C$11 million of class B notes (DBRS: AA) and C$5.5 million in the class C tranche (DBRS: A).

The class B notes due Sept. 17, 2017 priced at par to yield 3.52%, and the tranche C notes due Oct. 17, 2018 priced at par to yield 4.11%.

Scotia Capital Inc., BMO Capital Markets Corp. and RBC Capital Markets Corp. were the bookrunners.

Proceeds will be used to acquire a co-ownership interest in a portfolio of secured retail auto loans originated by Ally Credit Canada Ltd. and affiliates.

Toronto-based Canadian Capital Auto Receivables Asset Trust II purchases and manages financial assets acquired from General Motors Acceptance Corp. of Canada Ltd. and its affiliates, and borrows funds or sells securities to finance the purchases.

Videotron higher

Videotron sold C$300 million 6 7/8% senior notes due July 15, 2021 at par late Thursday, and the notes traded higher on Friday, informed bond sources said.

The 10-year notes were seen closing out at 100.625 bid, 100.875 offered.

Videotron is the cable, internet and mobile phone subsidiary of Quebecor Media Inc.

Union Gas up 1 point

The debt from Union Gas (DBRS: A) also traded higher on Friday, a bond source said.

"Union Gas was up 1 point this morning," the source said.

The utility sold C$300 million 4.88% medium-term debentures due June 21, 2041 at 99.875 to yield 4.888% on Thursday.

Union Gas, a subsidiary of Spectra Energy Corp., is a Canadian natural gas storage, transmission and distribution company based in Ontario.

OPTI still sinking

A trader said OPTI Canada's 7 7/8% and 8¼% notes due 2014 were weaker, trading around 40.

Another trader saw the 8¼% notes losing a point to 401/2.

A third trader said the subs were "still" trading around 40½ bid, 41 offered.

The bonds are trading flat, or without accrued interest.

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.

S&P then dropped its long-term corporate credit rating on the company to SD from CCC-.

The rating on the second-lien debt was also lowered to D from CCC.

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.

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

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