Markets quiet on holiday return; Kruger, Noranda bonds well bid, XM Canada trades higher

By Cristal Cody

Prospect News, Aug. 2 - Canada's corporate bond markets stayed quiet on low volume after the holiday weekend, while government bonds rallied Tuesday on the U.S. debt situation and global economic growth concerns.

New deal activity in the high-yield bond sector is expected to dry up over the next month, one source said Tuesday.

"We don't expect any new issuance for August," the source said. "August is pretty slow, [and] issuance in Canada has been choppy."

During July, only two high-yield deals priced in Canada, with issuers such as Precision Drilling Corp. selling bonds instead in the U.S. market.

Meanwhile, issuance picked up the previous week in Canada's investment-grade market after a long summer lull, and some deals are in the pipeline for the upcoming weeks, a bond source said.

Secondary trading was quiet on Tuesday. The bond markets in Canada were closed on Monday for a holiday.

"[There was] very little volume; we did get a lift out of a couple line items, and there was two-way flow. The markets are down maybe a quarter-point," a high-yield trader said.

The two high-yield deals sold in July from Kruger Products LP and Noranda Operating Trust "remain well bid" in trading, the trader said.

Armtec Holdings Ltd.'s six-year notes traded lower on the light trading.

One outperformer has been XM Canada parent Canadian Satellite Radio Holdings Inc.'s 9¾% senior notes due 2018, which have "moved up 2 or 3 points" in trading over the past month since the deal settled, the trader said.

Government paper gains

Government bonds jumped on lower U.S. consumer spending data and after U.S. president Barack Obama signed a bill to raise the country's debt ceiling to avoid a default, though the country still faces a credit ratings downgrade.

"Canada followed the U.S. bond market higher," said Mark Chandler, head of Canadian fixed income and currency research for RBC Capital Markets Corp. "A large part of the gains in Canada came primarily at the front end of the curve, with moves down in yields of 13 to 17 basis points. The biggest climb is happening in the belly of the curve in five-years."

Canada's 10-year note yield ended the day down 5 bps to 2.63%. The five-year note yield closed out 10 bps lower at 1.86% from 1.96%. The 30-year bond yield fell to 3.16% from 3.22%.

"It looks very stretched at this point," Chandler said. "The concerns over the last month or two months have been what was likely to happen on the policy front. Now it's turned to more fresh worries on the economic side of things. We wouldn't expect the rally to continue strongly from here, but those fresh economic worries are enough that we'll have a hard time getting to the yields we were at a couple months ago."

Market observers are looking to the week's major economic data with job numbers in Canada and the United States due out on Friday. A gain of about 15,000 jobs is forecast for Canada, while RBC anticipates an increase of 30,000 jobs in Canada.

Kruger rises

Kruger's new notes were seen at 101 bid, 101.5 offered in the secondary market on Tuesday, a trader said.

The company sold C$175 million 8% senior notes due Aug. 9, 2018 (/B/DBRS: BB) at par on July 28.

Kruger is Canada's leading tissue products producer and a subsidiary of Montreal-based pulp and paper producer Kruger Inc.

Noranda better

Noranda's senior notes Dec. 28, 2016 sold in July also traded higher at 101 bid, 101.5 offered on Tuesday, a trader said.

The company sold C$90 million of the five-year notes (DBRS: BB) at par to yield 6 7/8% on July 22.

Noranda Operating Trust is owned by Toronto-based Noranda Income Fund and has a 75% interest in Noranda Income LP, which owns the Canadian Electrolytic Zinc metal processing facility in Quebec.

Armtec down

Armtec's 8 7/8% senior notes due Sept. 22, 2017 traded on Tuesday at 82 bid, 85 offered, compared to where it traded a week ago at 83 bid, 86 offered, a trader said.

"Very little trading - just small odd lots here and there and retail buying," the trader said.

Armtec's bonds fell on July 26 after DBRS downgraded the company to B from BB. In June, the bonds dropped after Standard & Poor's lowered the company's debt ratings and parent company Armtec Infrastructure Inc. reported lower first-quarter earnings and suspended a quarterly dividend.

Armtec Holdings priced C$150 million of the seven-year notes on Sept. 15, 2010 at par.

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

XM Canada bonds higher

Canadian Satellite Radio's 9¾% senior notes due 2018 traded higher on Tuesday at 104.5 bid, 105.5 offered, a trader said.

"They are up materially since they settled," the trader said.

The company sold C$62 million of the notes at par on March 31 to fund the merger with Sirius Canada Inc., with the deal settling once the merger closed in June.

The satellite radio and communications company is based in Toronto.

Catalyst lower

A trader saw Catalyst Paper Corp., whose bonds gyrated around at sharply lower levels on Monday on poor second-quarter numbers from the Richmond, B.C.-based papermaker, "also quoted lower," with its 11% senior secured notes due 2016 at 74 bid, 76 offered.

"They probably bounced off of where they were" on Monday, he asserted, characterizing the bonds as "a lot uglier the other day." On Monday, those bonds had initially plunged as low as 70 bid following the release of the numbers, an 8-point nosedive from Friday's finish, although the bonds did come off their low point to end in the 73-74 area, still down around 4 points on the session.

He also saw the company's 7 3/8% notes due 2014 in a 44-46 range, up from Monday's nadir of 40-42 - a 12-point swoon from Friday. "Last week, they were in the 50s, he noted".

The bonds also finished Tuesday better as well from the 43-44 area where the bonds had gone home on Monday.

Trading stalls in Sino-Forest

A trader said that "I haven't really seen a lot of activity" in Sino-Forest Corp.'s paper recently, but he quoted the Canadian-Chinese timber company's busted 5% convertible notes due 2013 at 70 bid, 72 offered, while its busted 4¼% converts due 2014 were at 60 bid, 62 offered, which he called up about 1 point on both from Monday's levels.

However, he pointed out that these were just quotes, and there were "no trades" with the 41/4s, and since the 5s are a Rule 144A issue, he "really can't tell" what the true level of activity is or isn't."

"Between [Monday] and today, if you search it, there might have been 10 different quotes from two or three different people - that's it. So that tells me there was no activity in the name," he said.

He said the same held true for Sino-Forest's 10¼% straight junk bonds due 2014, most recently traded at 76½ bid. Across "the whole structure, I didn't see many quotes on it at all."

Paul Deckelman contributed to this review

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