Ontario reopens long bonds as corporates remain quiet, tone improves; Armtec trades flat

By Cristal Cody

Prospect News, May 10 - The Province of Ontario sold C$600 million in a reopening of long bonds in Canada on Thursday as corporate issuers continued to stay on the sidelines.

Corporate offerings are expected to pick up in the week ahead, with activity on Friday likely quiet, sources said.

"I wouldn't expect anything to materialize given that it's Thursday, but we'll see some deals next week," a syndicate source said.

Over the week, the market has seen municipal and public-private partnership deals from the Province Nova Scotia, City of Toronto and Capital City Link General Partnership.

"The Ontario deal went very well," a bond source said. "That's a good sign, market tone was good and equities are up. It was a good day after a couple days of turbulence due to the European political risks."

Ontario's reopening of the 3.5% bonds due June 2, 2043 follows a long bond deal on Wednesday from the Province of Nova Scotia, which reopened its 3.5% 50-year bond.

Provincial spreads firmed ½ basis point on the five-year note and 1 bp on the 10-year note and 30-year bond on Thursday.

Corporate bonds traded weaker on Wednesday but were seen coming in on Thursday, a source said.

"Monday through Wednesday, the market was pretty weak, but we saw spreads holding in," the source said. "Yesterday, we saw some spreads moving out 5 to 7 bps depending on the sector. Utilities stayed the same."

Bank and financial paper mostly traded weaker over the week but fared better in the secondary market on Thursday, sources said.

"Most of the financial names held in pretty well," one source said.

The Markit CDX Series 18 North American investment-grade index ended the day unchanged at a spread of 103 bps.

In Canada's high-yield market, Armtec Holdings Ltd.'s bonds traded mostly unchanged in the session following parent Armtec Infrastructure Inc.'s earnings report, a source said on Thursday.

Government bonds were mixed ahead of the release of Canada's monthly job report on Friday. The 10-year note yield rose 1 bp to 2%. Canada's 30-year bond yield fell 1 bp to 2.5%.

Ontario reopens long bonds

In the day's pricing action, the Province of Ontario (Aa2/AA-/DBRS: AA) sold C$600 million in an add-on to its 3.5% bonds due June 2, 2043 at 97.654 to yield 3.572%, a source said.

The bonds priced at a spread of 104 bps over the Government of Canada benchmark.

CIBC World Markets Inc. was the lead manager. Co-managers were BMO Capital Markets Corp., RBC Capital Markets Corp., National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc. and Merrill Lynch Canada Inc.

The province originally sold the issue on Jan. 26 in a C$600 million offering at 99.187 to yield 3.543%, or 88 bps over the Government of Canada benchmark.

In the last reopening on April 18, the province sold C$600 million of the bonds at 97.331 to yield 3.644%, or 104 bps over the Canadian government benchmark.

The total outstanding is C$3.9 billion.

Armtec flat

In the secondary market, Armtec's 8 7/8% senior notes due 2017 (/B-//DBRS: B) traded mostly flat at 63 bid on Thursday, compared to 62.5 bid in April, a source said.

Armtec sold the notes on Sept. 15, 2010 at par.

Guelph, Ont.-based Armtec Infrastructure manufactures and markets industrial infrastructure products and engineered construction solutions.

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