Air Canada bonds fall; Canadian Pacific Railway, Connacher Oil, Paramount paper improves

By Cristal Cody

Prospect News, Dec. 2 - Canadian corporate and government bonds traded flat to moderately better on Friday, though credit spreads have mostly underperformed equities over the week, informed bond sources said.

The Markit CDX Series 17 North American high-grade index ended unchanged at a spread of 126 basis points on Friday.

The new 10-year notes of Canadian Pacific Railway Co. went out Friday about 25 basis points tighter than where the notes priced at the start of the week, a trader said.

High-yield Canadian bonds traded about ½ point better overall on the week, a trader said Friday.

"Everything's up significantly today with the exception of Air Canada," the trader said.

Air Canada's bonds fell 4 points over the day in sector pressure from American Airlines' bankruptcy.

Connacher Oil & Gas Ltd.'s bonds were better on Friday but down from trading at the start of the week when the bonds gained on reports of the sale of some assets.

Paramount Resources Ltd.'s notes stayed stronger, trading up about 2 points on Friday.

In other market activity, Utility Split Trust announced on Friday that it plans to sell shares of its class B preferred stock (DBRS: Pfd-2) in Canada.

Government bonds rallied on weaker economic data. The 10-year note yield fell 3 bps to 2.11%. The 30-year bond yield closed down to 2.67% from 2.7%.

Statistics Canada said Friday that employment fell 19,000 in November and the unemployment rate rose 0.1% to 7.4%.

Canadian Pacific tightens

Canadian Pacific Railway's 4.5% notes due 2022 firmed to 248 bps bid on Friday, a trader said.

"They've tightened in 22-25 basis points from where they came," the trader said. "That issue is pretty well placed."

Canadian Pacific Railway sold the notes (Baa3/BBB-) in a $250 million tranche at a spread of Treasuries plus 275 bps late Monday.

The railroad operator is based in Calgary, Alta.

Air Canada loses altitude

Air Canada's Canadian and U.S. dollar-denominated bonds are trading lower on Friday, a source said.

American Airlines filed for Chapter 11 bankruptcy. The airline has $1 billion of 7½% senior secured notes due 2016 that have a similar collateral structure as Air Canada's 10 1/8% five-year notes, and investors worry whether they will be repaid, a source said.

American Airlines' five-year notes have dropped to the 60 area over the week.

Air Canada's Canadian issue of 10 1/8% senior first-lien notes due Aug. 1, 2015 slipped 4 points in trading to 90 bid, 94 offered on Friday, the trader said.

The 10 1/8% notes (B2/B+/) priced in a C$300 million offering on July 27, 2010 at 99.046.

Air Canada's U.S. dollar-denominated 9¼% senior first-lien notes due 2015 traded Friday at 90 bid, 92 offered, down several points on the week, the trader said.

The 9¼% five-year notes came in a $600 million offering on July 27, 2010 at 99.025.

Saint-Laurent, Quebec-based Air Canada provides airline services in Canada and to destinations in 181 countries.

Connacher 'better bid'

Connacher Oil & Gas' 8¾% notes due 2018 rose to 78 bid, 80 offered on Friday, a trader said.

"It's better bid," the trader said.

The bonds were quoted up 3 points on Monday to 95 bid, 97 offered on the reports of the asset sales, a trader said.

Connacher Oil sold C$350 million of the notes at par on May 20, 2011.

The crude oil and natural gas company is based in Calgary, Alta.

Paramount trades up

Paramount Resources' 8¼% series 2 senior unsecured notes due Dec. 13, 2017 (Caa2/B+/) stayed strong in trading over the week, going out Friday at 103 bid, a trader said.

The notes were quoted on Monday at 102 bid, 104 offered, up 2 points on reports the company will reorganize its oil sands and carbonate bitumen interests into a new subsidiary, Pixar Petroleum Corp.

The 8¼% six-year notes originally priced on Nov. 30, 2010 in a C$300 million offering at par.

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

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