Quebec sells C$500 million; BCE preferreds price, debentures widen; new deals in the works

By Cristal Cody

Prospect News, June 20 - The Canadian bond markets saw a surprise preferred stock offering from BCE Inc. and a reopening of provincial long bonds from the Province of Quebec, but otherwise markets generally were flat on the day, informed bond sources said Monday.

"Spreads were a little soft to start the day with the concerns overseas in Greece, so the deal was a little slower," an informed source said of Quebec's add-on to its 30-year bonds. "The Street was left long a little bit of product."

The province wanted to price on Monday so the bonds could settle ahead of the Quebec National Day holiday on Friday.

"Most market participants in Montreal and Quebec will be off that day, but the bond markets are still open," the source said.

That being said, the primary calendar in provincials and corporates is expected to stay active over the week, depending on market tone, according to sources.

"Ontario is always a definite issuer given the size of their program," one informed source said.

Two Ontario municipalities, the City of Ottawa and the Regional Municipality of York, also "have deals to do in the future," the source said.

In previous bond offerings, Ottawa typically prices 30-year debt, while York usually issues 10-year bonds.

Canada's corporate market also has "deals in the pipeline," a bond source said. "RBC has a high-yield conference later this week, so that may take away some from investors' focus. But we do expect issuance out of the corporate market."

Paul Monjanel, president of Ford Credit Canada; Shawn Ryan, Ford Motor Co. manager, fixed income investor relations; and Matt Stovcsik, Ford manager, debt capital markets, are scheduled to deliver the presentation at the RBC Capital Markets 2011 Canadian High Yield Conference in Toronto on Wednesday.

Corporate spreads on Monday ended the day 1 basis point to 2 bps wider, "where they opened up," a bond source said.

The C$1 billion in two tranches of medium term debentures that Bell Canada (Baa1/BBB+/DBRS: A) sold on May 16 traded 3 bps to 5 bps wider on Monday, in line with the telecom sector, a bond source said.

"Telcos have underperformed just because of all the issuance we've seen out of Rogers, Bell, Telus," the source said.

Provincial bond spreads were seen ending the day better, 1 bp tighter across the curve.

Canadian government bonds moved lower, sending the 10-year bond yield up 5 bps to 2.96%. The 30-year bond yield rose 3 bps to 3.41%.

Quebec sells C$500 million

The Province of Quebec (Aa2/A+/DBRS: A) priced C$500 million in a reopening of its 5% bonds due Dec. 1, 2041 at 111.307 to yield 4.328% on Monday, an informed bond source said.

The bonds priced at a spread of 91.5 bps over the Government of Canada benchmark.

The lead manager was National Bank Financial Inc. Co-managers were BMO Capital Markets Corp. and RBC Capital Markets Corp.

Quebec previously reopened the issue on June 14 to sell C$500 million at 110.749 to yield 4.359%, or a spread of 89 bps over the government benchmark. The total outstanding now is C$8 billion.

BCE sells preferreds

BCE reported that it sold C$300 million, or 12 million shares, of cumulative redeemable first preferred stock on Monday.

The Canadian telecommunications company sold the series AK shares at C$25.00 per share.

The shares pay a 4.15% annual dividend for the initial five-year fixed-rate period ending Dec. 30, 2016. The shares are redeemable on or after Dec. 31, 2016.

CIBC World Markets Inc., RBC Dominion Securities Inc. and Scotia Capital Inc. led the syndicate of underwriters.

The deal includes an over-allotment option of an additional C$45 million, or 1.8 million preferred shares.

Proceeds will be used for general corporate purposes.

BCE is the parent company of Montreal-based Bell Canada, Canada's largest telecommunications company.

Bell Canada wider

BCE's preferred sale surprised some market analysts "because they're relatively up cash. They issued not long ago a billion-dollar deal," one informed bond source noted.

Bell Canada's 3.65% notes due May 19, 2016 traded 5 bps wider on Monday at 121 bps bid, 116 bps offered, the bond source said. Bell Canada priced C$500 million in the series M-23 tranche at a spread of 116.4 bps over the Canadian government benchmark.

The second tranche of debentures that Bell Canada sold in May also widened in secondary trading. The 4.95% notes due May 19, 2021 that priced a spread of 182 bps over the government benchmark were quoted Monday at 186 bps bid, 181 bps offered.

The telecommunications company is based in Montreal.

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