PSP Capital sells C$1.25 billion MTNs; Yellow Media short-dated notes getting 'crushed'

By Cristal Cody

Prospect News, Feb. 13 - Infrequent AAA-rated issuer PSP Capital Inc. tapped the Canadian bond markets for C$1.25 billion in two tranches of medium-term notes on Monday.

"They do periodically come to the market and they always go well," the source said. "This one is in the federal index, so you get a crossover of buyers of corporates and government-type accounts looking at them."

PSP Capital was last in the market with a fixed-rate deal in November 2010.

Primary activity in Canada's bond market is expected to slow over the week.

"A lot of issuers got their financing done prior to the Greece deadline," a bond source said. "I'm hearing rumblings there might be some issuance, but it's going to be measured."

Also on Monday, Power Financial Corp. came with an upsized sale of C$250 million of preferred stock, following Friday's C$250 million preferred stock offering by Great-West Lifeco Inc.

Investment-grade bonds were stronger on Monday. The Markit CDX Series 17 North American high-grade index firmed 2 basis points to a spread of 97 bps.

In the secondary market, PSP Capital's new tranches traded 3 bps to 4 bps tighter.

Yellow Media Inc.'s short-dated notes are getting "crushed" while their longer-dated bonds are holding in, a source said on Monday.

"The long-term ones are unchanged," the bond source said. "Last week, the 6½% [notes due 2013] were trading in the mid to high 60s and now they're in the low to mid 50s."

Earlier in the day, DBRS said it downgraded Yellow Media's medium-term notes to B from BB and its cumulative preferred shares to Pfd-5 from Pfd-4.

Government bonds were mostly flat on the day after Greece approved austerity measures for a second bailout. Canada's 10-year note yield ended unchanged at 2.07%. The 30-year bond yield rose 1 bp to 2.63%.

PSP Capital sells MTNs

In Monday's primary action, PSP Capital priced C$1.25 billion in two tranches of medium-term notes (DBRS: AAA), according to a syndicate source.

The guaranteed financing subsidiary of Public Sector Pension Investment Board sold C$350 million of three-year floating-rate notes at par to yield 39 bps over the Canadian Dealer Offered Rate.

In the second tranche, PSP priced C$900 million of 2.26% five-year fixed-rate notes at 99.972 to yield 2.266%, or a spread of 84 bps over the Government of Canada benchmark.

TD Securities Inc. and RBC Capital Markets Corp. were the lead managers.

Proceeds will be used to repay about $700 million of outstanding commercial paper and to finance additional investment activities.

PSP Capital was last in the market on Nov. 30, 2010 with the sale of C$700 million of 2.94% five-year notes to yield 2.949%, or a spread of 62.1 bps over the government benchmark.

Late afternoon in the secondary market, the new floating-rate notes due 2015 traded 3 bps tighter, a source said.

The notes due 2017 firmed 4 bps.

Ottawa-based Public Sector Pension Investment Board invests funds for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force.

Power Financial prices

Power Financial announced on Monday that it raised C$250 million in an offering of preferred stock to yield 5.5%.

The company sold 10 million shares of series R non-cumulative first preferred stock (DBRS: Pfd-1) at C$25.00 per share.

The deal was upsized from C$150 million, or 6 million shares.

BMO Capital Markets Corp., RBC Capital Markets and Scotia Capital Inc. were the lead managers.

Proceeds will be used to supplement the company's financial resources and for general corporate purposes.

Power Financial is a holding company that controls Canadian financial service providers Great-West Lifeco and IGM Financial Inc.

Winnipeg, Man.-based Great-West Lifeco was in the market on Friday with an upsized offering of C$250 million of non-cumulative first preferred shares (DBRS: Pfd-1) to yield 5.4% for the initial five-year period.

Yellow Media notes plunge

Yellow Media's 6½% notes due 2013, quoted on Thursday at 60 bid, were quoted on Monday at 50 bid, 55 offered in Canada's secondary market, a source said.

"They're starting to trade on recovery value," the source said. "The long-term ones have really backed up because they were already trading close to recovery and the refinancing risk is a lot less on them, whereas the short-term ones - people are counting on them being refinanced and the refinancing risk has gone up a lot."

Yellow Media reported on Thursday that fourth-quarter revenue fell 9% to C$313.3 million.

Montreal-based Yellow Media is the largest directory publisher in Canada.

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