Quebec sells kangaroo bonds; corporates firm on lack of new deals, Videotron trades up

By Cristal Cody

Prospect News, July 5 - Canadian corporate bond spreads firmed in trading on Tuesday on the lack of new issuance, according to sources.

"Corporates tightened a couple basis points on the day," an informed source said. "No real effect from the Portugal news, just a lack of new supply in Canada is helping spreads stay tight."

During the day Moody's Investors Service downgraded Portugal four notches to junk status.

The corporate primary market has not seen a new deal in more than two weeks. Issuers are "looking to tap the markets" but it may take one willing to take the plunge and start things off after the lull, the source said.

High-yield bond activity also picked up, one informed source said. "We are trading lots," the source said.

Armtec Holdings Ltd.'s senior notes moved higher on the offer side. Videotron Ltd.'s notes also gained.

The provincial bond market saw a little more activity over the last half of June with a couple of deals a week. On Monday, the Province of Quebec kicked off July with an A$225 million 10-year kangaroo deal.

"We saw it about 10 basis points back of where they could issue domestically so they paid up a little bit to diversify their investor base," an informed bond source said. "Looks like their first one in the Australian market in a number of years."

Otherwise, the bond markets stayed quiet on Monday and into Tuesday after the long holiday weekend. The Canadian bond markets were closed on Friday and the U.S. markets were closed on Monday.

"It was another quiet one today," according to a provincial bond source. "Spreads tightened about a half basis point yesterday in longs and this morning 10s opened up half a bp tighter. We saw decent overnight interest from a central Asian bank buying the 10-year but over the day spreads pushed out half a bias point across the curve."

Canadian government bonds rose after Moody's downgraded Portugal's rating. Canada's 10-year note yield fell 2 basis points to 3.07%. The 30-year bond yield also closed 2 bps lower to 3.51%.

Quebec sells A$225 million

The Province of Quebec (Aa2/A+/AA-) sold A$225 million of 6.5% 10-year notes at 99.927 to yield 6.51%, an informed bond source said.

The notes priced on Monday at a spread of Australian mid-swaps plus 75 basis points.

RBC Capital Markets Corp. and TD Securities Inc. were lead managers.

The kangaroo deal is the province's first new issuance in Australia since 2005.

Armtec active

Armtec's 8.875% senior notes due Sept. 22, 2017 rose higher on the offer side on Tuesday, an informed bond source said. The company announced over the weekend that it entered into a C$125 million credit facility with a Brookfield Asset Management Inc. unit. Brookfield will receive transaction warrants that will allow it to purchase 15% of Armtec.

Armtec's 8.875% senior notes due Sept. 22, 2017 were seen going out on Tuesday at 79 bid, 85 offered, the source said. The notes were seen a week ago at 79 bid, 81 offered. Armtec priced C$150 million of the seven-year notes on Sept. 15, 2010 at par.

The bonds had dropped in June after parent company Armtec Infrastructure Inc. 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.

Videotron better

The 6.875% senior notes due July 15, 2021 that Videotron (Ba1/BB/) priced in June were stronger in the secondary market on Tuesday, an informed bond source said.

The 10-year notes traded "wrapped around 101" late Tuesday, the source said. Videotron sold the C$300 million offering of bonds at par on June 16. The company announced on Tuesday that the deal had closed.

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

Sino-Forest steady

A trader said of Sino-Forest Corp.'s bonds that "over the last couple of days, they're up 2 or 3 points, but they've been pretty steady today."

He saw the Canadian-Chinese timber company's 9 1/8% notes that are scheduled to mature on Aug. 17 in an 87-91 context, its 10¼% notes due 2014 at 58-60 and its 6 ¼% notes due 2017 at 50-52.

Among the company's busted convertible notes, he saw its 5% paper due 2013 trading in a 51-55 range and its 4¼% notes due 2016 at 47-49.

"So maybe a couple of them are up a point," he said, "but I didn't really see that much activity in them. It was really just quotes."

Catalyst flat

A trader said Catalyst Paper Corp.'s notes were generally unchanged.

He quoted the Richmond, B.C.-based paper manufacturer's 11% senior secured notes due 2016 at 85 bid, 86 offered, while its 7 3/8% notes due 2014 were at 62 bid, 64 offered. "That's where they were all day - it was quiet."

Nortel down

A trader saw Nortel Networks Corp.'s 10¾% due 2016 at 104½ bid, 105 offered, down around ½ point from the 105-106 level at which those bonds had settled on Friday after jumping about 8 or 9 points on news of a better-than-anticipated $4.5 billion auction of the bankrupt Canadian communications technology manufacturer's rich portfolio of patents. The winning bid, by a consortium of high-tech heavyweights like Apple, Microsoft, Research In Motion and Ericsson, was about five times the original $900 million bid submitted by Google, with the difference providing a bigger return to Nortel bondholders and other creditors when the company is liquidated.

The trader said that there was "decent volume on those - they had a lot of trading, but in that range", after opening around the 105½ area.

Paul Deckelman contributed to this review

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