RBC prices $1.6 billion of notes; energy bonds better bid, Paramount, Vermilion trade up

By Cristal Cody

Prospect News, July 13 - Canadian corporate bonds traded better on Wednesday while the primary side stayed mum, though the Royal Bank of Canada brought $1.6 billion of notes in the U.S. high-grade market.

No secondary activity was immediately seen in Royal Bank of Canada's new deal.

Toronto-Dominion Bank's paper firmed a basis point on the bid side on Wednesday, a trader said.

Canada's high-yield energy market is "much better bid" on Wednesday, an informed source said. Bonds from Paramount Resources Ltd., Savanna Energy Services Corp. and Vermilion Energy Inc. all traded higher as commodity and oil prices rose.

OPTI Canada Inc. was the big news Wednesday as the company announced it had commenced restructuring proceedings in Canada. The agreement came just days before a 30-day grace period was set to expire, after the company missed a coupon on its subordinated debt last month. The news gave the bonds a boost, according to traders.

Canada government bonds traded early off of the U.S. rally after a strong 10-year note auction and U.S. Federal Reserve chairman Ben Bernanke's comments that the government is ready to ease the U.S. monetary policy if needed. But, Moody's Investors Service's late afternoon downgrade review placement of the United States' Aaa bond rating kept the rally short.

"Choppy day today," one bond source said Wednesday. "We lagged the U.S. rally after the 10-year auction. The strong U.S. auction helped U.S. bonds recover losses and Canada lagged that rally post-auction."

Government bond spreads traded 3 basis points wider in five- and 10-year notes over the day. Canada's 10-year note yield closed out the day up 1 bp at 2.93%. The 30-year bond yield rose to 3.38% from 3.37%.

RBC prices $1.6 billion

The Royal Bank of Canada sold $1.6 billion of notes (Aa1/AA-) in an expanded two tranches on Wednesday, said a source away from the sale.

The bank's floating-rate notes due April 2014 were reopened to add $350 million. They priced at 100.0555 with coupon of three-month Libor plus 30 bps to yield Libor plus 28 bps.

The floaters were talked in the Libor plus 28 bps area and priced in line with guidance.

Total issuance is $1.25 billion, including $900 million sold on April 12 at Libor plus 30 bps.

A second, and original single tranche of the sale, was $1.25 billion of 2.3% five-year notes priced at 99.939 to yield 2.313% with a spread of Treasuries plus 88 bps.

The notes priced at the tight end of talk in the 90 bps area.

Bookrunners were Citigroup Global Markets Inc., RBC Capital Markets LLC and Wells Fargo Securities LLC.

The investment bank is based in Toronto.

TD Bank better

Financials traded better on Wednesday and Toronto-Dominion Bank's 2.5% senior medium-term notes due 2016 firmed 1 bp in the secondary market, a trader said.

The five-year notes (Aaa/AA-) firmed to 84 bps bid, 80 bps offered late afternoon. The notes priced on July 7 at Treasuries plus 85 bps.

The bank and financial services company is based in Toronto.

Savanna Energy climbs

Savanna Energy Services' 7% senior notes due May 25, 2018 traded Wednesday at 99.5 bid, 100 offered, a quarter point better than at the start of the month, a trader said.

The company priced C$125 million in the offering of the notes at par on May 19.

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

Paramount Resources stronger

Paramount Resources' 8¼% series 2 senior unsecured notes due Dec. 13, 2017 traded higher at 102 bid, 103.25 offered on Wednesday, according to a trader.

The notes (Caa2/B+/) were sold on Nov. 30, 2010 at par in a C$300 million deal.

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

Vermilion Energy higher

Vermilion Energy's short-dated notes (/BB-/DBRS: BB) also traded higher in the secondary market. A trader saw the 6½% senior notes due Feb. 10, 2016 at 102 bid, 103 offered on Wednesday afternoon.

The Calgary, Alta.-based oil and gas producer sold C$225 million of the notes on Feb. 3 at par.

OPTI up on restructuring

OPTI Canada's debt traded up on news the company had reached an agreement with noteholders that would allow it to restructure its balance sheet.

As such, OPTI said it had "commenced proceedings in the Court of Queen's Bench of Alberta under the Companies' Creditors Arrangement Act to implement the restructuring."

A trader said the subordinated paper - the 8¼% and 7 7/8% notes due 2014 - traded up nearly a point to around 43. The senior notes - the 9% notes due 2012 and the 9¾% notes due 2013 - were also better at 102 bid, 102¾ offered.

"They had been wrapped around 101," the trader said. "You could tell they were going to file."

Another trader pegged the subs around 43 and the seniors around 102.

Under the terms of the restructuring agreement, the Calgary, Alta.-based oil-sands producer will convert the subordinated notes into common stock. Additionally, the company will undertake a C$375 million rights offering, which will be backstopped by certain members of the subordinated noteholder group.

The senior notes must be refinanced prior to the closing of the offering as a condition of the agreement.

Existing stock will be cancelled, though stockholders will receive warrants to purchase about 20% of the new shares in the rights offering.

"The restructuring and new equity commitment we have negotiated is indicative of the support of OPTI's noteholders, who recognize the long term value in the company's asset base," said Chris Slubicki, president and chief executive officer, in a statement. "The recapitalization of our balance sheet will provide us with cash resources to continue to advance operations at Long Lake, as well as to begin development at Kinosis, with our operating partner, Nexen [Inc.]."

OPTI hopes to complete the restructuring by Dec. 1.

On the news, Standard & Poor's dropped OPTI's rating to D from SD. S&P had previously placed the rating at SD when OPTI missed a coupon payment last month.

Andrea Heisinger and Stephanie N. Rotondo contributed to this review

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