Potash sells $1 billion two-part U.S. deal; BAM Split brings preferreds; Valeant widens

By Cristal Cody

Prospect News, Nov. 22 - Primary activity in the Canadian bond markets lightened on Monday, with one sale offered in preferred securities from BAM Split Corp., while Potash Corp. of Saskatchewan Inc. sold its $1 billion of seven-year and 30-year senior unsecured notes (Baa1/A-/), sources said.

Saskatoon, Sask.-based Potash priced $500 million of 3.25% notes due 2017 at 99.652 to yield 3.306%, or a spread of 122 bps over Treasuries. The notes were talked at a spread of 130 bps over Treasuries.

The second tranche for $500 million of bonds due 2040 priced at 98.602 to yield 5.723%, or a spread of 152 bps plus Treasuries. The notes were talked at 152 bps over Treasuries.

The bookrunners were Bank of America Merrill Lynch, Goldman Sachs & Co., Morgan Stanley & Co. Inc. and Scotia Capital Inc.

Potash sold the notes to fund a $2 billion share buyback program announced after BHP Billiton Ltd. withdrew a planned takeover of the fertilizer and feed products company.

In the Canadian market, BAM Split said Monday that it sold C$110 million of 4.85% series 5 class AA preferred shares due Dec. 10, 2017.

Scotia Capital Inc., CIBC World Markets Inc., RBC Capital Markets Corp. and TD Securities Inc. are the lead bookrunners.

The underwriters have an over-allotment option to purchase an additional C$15 million of series 5 preferreds.

The proceeds will be used to pay a special cash dividend to holders of BAM Split's capital shares.

Toronto-based BAM Split owns a portfolio consisting of 53,160,644 class A limited voting shares of Brookfield Asset Management Inc., which is expected to yield quarterly dividends to fund quarterly fixed cumulative preferential dividends for the holders of the company's preferred shares and to enable the holders of capital shares to participate in any capital appreciation of the Brookfield shares.

Brookfield is focused on property, renewable power and infrastructure assets and has more than $100 billion of assets under management.

Canadian bonds rise

Canadian bonds rose, sending yields down, on Monday following the pattern of U.S. Treasuries on a lack of economic data, said Kam Bath, a fixed income strategist at RBC Capital Markets Corp.

The yield on Canada's 10-year note fell to 3.086% from 3.14%. The two-year note yield fell to 1.614% from 1.65%.

"We're looking forward to tomorrow's numbers," Bath said of the Consumer Price Index report on core inflation from Statistics Canada. "We're looking for a more subdued core. There's a light supply this week as well. All we have is the two-year switch operation on Wednesday."

Canada will repurchase C$1 billion of notes due 2012 through 2014 on Wednesday.

"Trading will probably slow down after Wednesday," Bath said.

Although the Canadian markets are not closed, the U.S. bond markets will be closed on Thursday for Thanksgiving Day and close early on Friday.

"It'll be a quiet session in Canada as well. There's no data scheduled for Thursday or Friday," Bath said.

U.S. Treasuries were higher Monday on European debt worries and after the successful auction of two-year notes.

The yield on the benchmark 10-year note fell to 2.8% on Monday from 2.87% on Friday. The two-year note yield dropped 5 bps to 0.46%.

Over the weekend, Ireland officials requested financial aid in the form of a three-year loan package of €80 billion to €100 billion. Uncertainty continued on Monday after Moody's Investors Service said it may downgrade Ireland's credit rating of Aa2 on the aid package from the European Union and the International Monetary Fund.

The concerns attracted investors to safer havens of U.S. fixed income on Monday.

Also on Monday, the Treasury Department sold $35 billion of two-year notes on strong demand at a yield of 0.52%, up from the 0.4% yield sold in the auction of two-year notes in October.

The government plans to sell a total of $99 billion of Treasury debt over the week, including five- and seven-year notes on Tuesday and Wednesday.

Cara to wrap roadshow

In Canadian high-yield bond activity, no price talk was heard yet on Cara Operations Ltd.'s C$200 million offering of five-year senior secured second-lien notes, according to a source.

The company's roadshow for the offering had a "full day of one-on-ones in Toronto today and Vancouver tomorrow," an informed source said.

The deal is being shopped by Scotia Capital.

There are "multiple expressions of interest already in the transaction," the source said.

Proceeds from the sale of the notes will be used to reduce bank debt.

Cara Operations is the largest full-service restaurant operator in Canada. The company is based in Vaughan, Ont.

Valeant weaker

A trader said that the recent Valeant Pharmaceuticals International 6 7/8% notes due 2018 eased to 98 3/8 bid, 99½ offered in light dealings on Monday.

That's down from the 99 bid, 99½ offered level seen on Friday.

The Mississauga, Ont.-based drug maker's quickly shopped $1 billion offering - upsized from the originally announced $700 million - had priced late Thursday at 99.24 to yield 7%.

Paul Deckelman contributed to this review

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