Canada secondary market firms; Teranet prices two tranches; Quebec reopens 2021 notes

By Rebecca Melvin

New York, March 30 - Activity picked up in both the Canadian secondary and primary bond markets on Wednesday, the day before month-end, and pricing was firmer as the tone in the broader markets improved.

Canadian equities were led higher by Valeant Pharmaceuticals International, which made a hostile takeover bid for U.S. biotech Cephalon Inc.

In new issue action, Teranet Holdings LP sold C$525 million of senior secured notes in two tranches Wednesday afternoon, including a reopening of its 4.807% notes due Dec. 16, 2020 for C$250 million and a new long bond to yield 6.1% for C$275 million.

Also on the corporate side, Arrow Lakes Power Corp. was being watched, but the company didn't yet price its planned C$350 million of senior bonds (A2).

Representatives of the deal were holding meetings on both sides of the country in Vancouver, B.C., and Montreal on Wednesday, a syndicate source said, indicating that the pricing may be getting close.

The general pick up in activity extended to provincial issuers like the Province of Quebec, which sold a C$500 million reopening of a 10-year benchmark.

"I think it's going to get busier," a market source said of the provincial debt market.

Corporate debt has been steady and was expected to remain so for the immediate future, but provincial debt should tick up, the market source said, citing the release of the Province of Ontario's budget on Tuesday, and "coming out of the blackout period."

"It's been muted on the provincial side," the market source said. In contrast, the corporate side has been steady and will likely remain so. "There's just not a big pipeline," the source said.

'Definitely firmer'

In secondary market action, there was a pick up in activity and pricing Wednesday contrary to expectations at the beginning of the week, given that portfolio managers had been expected to sit tight through month-end.

"It was definitely firmer," a Toronto-based market source said.

"It was better across the board, with people going after, or targeting yield-y names, it felt like, or some of the riskier [plays] and relative value trades, with cross-border focus like Ford [Motor Co.]," the market source said.

The market source said that credit has lagged equities for the last couple of weeks in general and Wednesday marked something of a "bit of catch up."

Overall, the tone was better. It was a good day to trade and a good day to issue paper, other sources concurred.

The fact that Teranet priced Wednesday wasn't much of a surprise given that there was an investor call on the deal on Monday, a Toronto-based market source said.

Teranet sells notes

Teranet sold C$525 million of senior secured notes in two tranches in a private sale Wednesday, including one reopening and one new issue.

The Toronto-based owner of Ontario's electronic land registration system sold C$250 million 4.807% notes due Dec. 16, 2020 at par, or a spread of 175 basis points over the Canadian government benchmark.

The new tranche was an add-on to an existing $450 million of the 4.807% bonds, which originated from December, for a total C$700 million outstanding of the 2020 paper.

"They had done the initial offering in December and still had a little short fall. They decided to access the market; it was a good day for it," a syndicate source said.

Teranet also sold C$275 million 6.1% bonds due June 17, 2041, which represents a new bond issue.

Bookrunners included Scotia Capital Inc., which was upper left, BMO Capital Markets Corp. and RBC Capital Markets Corp.

Quebec prices add-on

The additional C$500 million of 4.25% notes due Dec. 1, 2021 that the province of Quebec sold as an add-on brings the tranche total to C$2 billion.

The notes priced at a spread of 78 bps over the Government of Canada benchmark.

"They saw that the markets were OK. The tone was slightly positive," a market source said.

National Bank Financial Inc. was the lead manager.

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