TD Bank sells mortgage-backed notes; Ontario reopens 10-years; corporates 'better bid'

By Cristal Cody

Prospect News, July 12 - Canadian corporate and provincial bond spreads ended the day stronger after a weak start to the day, while Toronto-Dominion Bank priced an upsized C$600 million in two tranches of NHA mortgage-backed notes on Tuesday.

It was a "slow day in corporates," an informed bond source said. "We still haven't seen a true corporate in over three weeks in the market."

In provincial primary activity, the Province of Ontario raised C$750 million in a reopening of the benchmark 4% 10-year notes in a "tough market, but it was well-subscribed," a syndicate source said Tuesday.

Provincial bond "spreads opened up a basis point and a half wider yesterday and opened up again wider this morning," an informed source said. "Fives and 10s are closing unchanged on the day from opening levels and longs are closing half a basis point tighter."

Corporate bond spreads traded 2 bps to 3 bps tighter from opening levels on Tuesday.

"Corporates opened quite weak from yesterday's close," the source said. "Corporate spreads are doing the same as provincials, spending the better part of the day better bid."

Toronto-Dominion Bank's five-year notes gave back gains made since the deal priced the previous week, a trader said.

In other trading, Teck Resources Ltd.'s long bonds (Baa2/BBB/BBB) that priced in June continued to trade about 20 bps tighter.

Nortel Networks Corp. managed to gain ground in active trading, according to sources. The paper was trading actively as investors seemed optimistic about their recovery options.

Government bonds slipped on the short end of the curve as concerns with Italian debt subsided on potential support from the European Central Bank but were renewed on Moody's Investors Service's downgrade of Ireland to junk status.

"That's causing a little flight-to-quality in bonds ending the day," a bond source said.

Stocks and government bonds "have been bouncing up and down today," another bond source said. "It was risk-on earlier and now it looks like risk-off by the close. The European debt crisis is still on the table, same with the U.S. debt ceiling. We're in the heart of summer and we expect a bit of low volumes and a bit of volatility."

Canada's 10-year note yield rose 2 bps to 2.89%. The 30-year bond yield ended the day unchanged at 3.35%.

TD Bank prices two tranches

Toronto-Dominion Bank priced an upsized C$600 million in two tranches of NHA mortgage-backed notes on Tuesday as part of the quarterly Canada Mortgage and Housing Corp. program, an informed bond source said.

TD Bank priced C$100 million in a 1.6% three-year tranche at 98.833 to yield 2.043%.

The second tranche was upsized to C$500 million from C$300 million. The 2.3% five-year notes priced at 99.136 to yield 2.508%.

TD Securities Inc. was the lead manager.

The pool consists of residential mortgages insured by Canada Mortgage and Housing and originated by Toronto-based TD Bank.

Ontario sells C$750 million

The Province of Ontario (Aa1/AA-/DBRS: AA) added another C$750 million to its 10-year benchmark issue in a reopening of the 4% notes, a syndicate source said Tuesday.

The province sold the bonds at a spread of 74.5 bps over the Government of Canada benchmark.

Ontario's deal came on Monday as markets focused on debt concerns in Europe amid a sell-off in Italian sovereign bonds.

"One account in particular was buying a big chunk of it, maybe a third of it," the syndicate source said. "Without that one order, it was up in the air."

RBC Capital Markets Corp. was the lead manager. BMO Capital Markets Corp. and CIBC World Markets Inc. were the co-managers.

The province last reopened the issue on June 22 to sell C$750 million of the notes at a spread of 77.5 bps over the government benchmark. The issue now has a total of C$6 billion outstanding.

TD Bank widens

Toronto-Dominion Bank's new 2.5% senior medium-term notes due 2016 (Aaa/AA-) widened 1 bp on the bid side in trading to 85 bps bid, 80 bps offered on Tuesday from the previous day's quote of 84 bps, 81 bps, a trader said.

The bank and financial services company sold the notes on Thursday at Treasuries plus 85 bps.

Teck holds

Teck Resources' long bonds have stayed about 20 bps tighter in secondary trading since initial trading after the bonds priced on June 29, a bond source said Tuesday.

The company sold $1 billion of the 6.25% bonds due 2041 at a spread of Treasuries plus 190 bps. The notes have held steady since initial trading in the 175 bps-range, the source said.

The diversified resource company for mining and mineral development is based in Vancouver, B.C.

Nortel heads up again

Nortel Networks was deemed "very active" yet again, as the bonds headed upward.

A trader pegged the 10¾% notes due 2016 and the 10 1/8% notes due 2013 at 1091/2.

Another trader said the paper was "probably up about a point" at 109½ bid, 109¾ offered.

A third trader said the debt opened around 108 bid, then hit a high of 110 before settling in around 109 bid, 110 offered. That compared to 107½ bid, 108½ offered previously, the trader said.

A fourth said that Nortel's bonds "quieted down today a lot" in terms of price movements, although he still saw the bankrupt communications technology company's 10¾% notes due 2016 trading at a 109 5/8-109¾ bid context. He said it was unchanged but on "a lot of activity."

But another trader said that the credit "looked like it had some activity today," calling the 103/4s up a point on the day at 109½ bid, 110 offered, with its 6 7/8% notes due 2023 in a 78-80 context, which he called up 1½ points.

"Both had had pretty good activity, with good volume on the 103/4s, for sure, and some volume" on the 6 7/8s. He said there was "not a lot of volume" overall in the latter bonds, "but there were some trades, decent trades, in the 79 range."

At another desk, the Nortel 103/4s were pegged up 1 1/8 points at 109½ bid on brisk volume, while the company's 10 1/8% notes due 2013 rose 1½ points to 109 3/8.

The fourth trader said that "they caught a break, I'll tell you - the bondholders there," referring to the better-than-expected results for the company's recent court-supervised auction of its valuable portfolio of 6,000 high-tech patents, which produced a winning bid of $4.5 billion - about three times as much as analysts were looking for and five times the initial $900 million "stalking-horse" bid from Google Inc. The unexpected additional proceeds swell the size of the bankruptcy estate, meaning larger recoveries for bondholders and other creditors.

At the joint hearing on Monday, U.S. bankruptcy judge Kevin Gross in Wilmington, Del., and Ontario Superior Court judge Geoffrey Morawetz in Toronto gave the go-ahead on Nortel's patent auction sale to the Rockstar Bidco LP group.

Along with Apple Inc. and Microsoft Corp., the group includes Research In Motion Ltd., Sony Corp., Ericsson AB and EMC Corp.

Nortel, a Toronto-based manufacturer of wireless telecommunications technology, filed for Chapter 11 protections in January 2009. Since then, the company has sold off units to pare down and to pay off creditors. With the monstrous bid from the patent auction, creditors are expecting to receive 100% pre-petition recovery and there is some optimism about post-petition recovery as well.

Broad market softens

Elsewhere in the distressed market, OPTI Canada Inc.'s subordinated issues - the 8º% and 7 7/8% notes due 2014 - finished at 42½ bid, 43½ offered.

"Maybe that's down a little bit," the trader said.

But another trader said the notes were "up a little bit" on stronger oil prices. He quoted the debt at 42º bid, 42½ offered.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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