Ontario sells C$750 million add-on; preferred market picks up; Armtec's 8 7/8% bonds sink

By Cristal Cody

Prospect News, June 22 - The Canadian bond market stayed quiet on the corporate side, but the provincial market continued to see steady activity with another deal on Wednesday, informed sources said.

The Province of Ontario "came very, very early" with a sale of C$750 million in a reopening of its 4% benchmark notes due June 2, 2021, a source said.

The Province of Quebec was in the market on Monday and the Regional Municipality of York brought a deal on Tuesday.

Some activity also was seen in the preferred market, with the second offering of the week announced on Wednesday. Intact Financial Corp. said it priced C$225 million preferred shares on Wednesday. BCE Inc. opened the week with a sale of C$300 million of preferreds.

Provincial bond spreads are "steady," one bond source said.

In Canada's high-yield market, secondary activity picked up going into Wednesday. Armtec Holdings Ltd.'s bonds, though, were not among the winners and continued to weaken in trading, according to an informed source.

In other trading, Catalyst Paper Corp.'s debt moved higher, an attempted recovery after the company said it had hired advisers to look over its financial alternatives.

Meanwhile, Sino-Forest Corp.'s bonds rebounded a few points, though trading had quieted down considerably after Tuesday's rollercoaster.

Canadian government bond prices were flat to higher across the curve, tracking U.S. Treasuries after the Federal Reserve lowered the U.S. economic growth outlook but left rates unchanged.

Canada's 10-year note yield was unchanged at 2.97%. The 30-year bond yield fell 1 basis point to 3.41%.

Ontario raises C$750 million

The Province of Ontario (Aa1/AA-/DBRS: AA) sold C$750 million in a reopening of its 4% benchmark notes due June 2, 2021 at 102.122 to yield 3.742% on Wednesday, an informed source said.

The notes priced at a spread of 77.5 bps over the Government of Canada benchmark.

CIBC World Markets Inc. was the lead manager.

The issue now has a total outstanding of C$5.25 billion.

Intact Financial sells preferreds

Intact Financial announced on Wednesday that it priced C$225 million in an offering of non-cumulative rate reset series 1 class A preferred shares (DBRS: Pfd-2).

The company sold 9 million preferred shares at a price of C$25.00 per share. The preferreds yield an annual dividend of 4.2% for the initial period ending Dec. 31, 2017.

CIBC World Markets Inc., RBC Capital Markets, Scotia Capital Inc. and TD Securities Inc. led the syndicate of underwriters. The offering includes an over-allotment option of C$25 million, or an additional 1 million shares.

Proceeds will be combined with borrowings under acquisition credit facilities previously arranged by the company, proceeds of a previously announced subscription receipt offering and a portion of existing cash resources to fund the purchase price for the acquisition of all the outstanding shares of AXA Canada, the Canadian insurer division of Paris-based AXA SA. The acquisition is expected to close in the fall.

The preferred sale is not conditional upon the takeover. Intact Financial said in the release that if the acquisition is not completed, proceeds will be used for general corporate purposes.

Toronto-based Intact Financial is the largest provider of property and casualty insurance in Canada with $4.5 billion in premiums.

Armtec down

Armtec's 8 7/8% senior unsecured notes due Sept. 22, 2017 fell to 77.5 bid, 82 offered on Wednesday from 83 bid, 85 offered on Tuesday.

A week ago, on June 15, the notes were quoted at 90 bid, 94 offered.

The company priced C$150 million of the seven-year notes on Sept. 15, 2010 at par.

Armtec's bonds widened in trading after parent company Armtec Infrastructure Inc. reported lower first-quarter earnings, suspended its quarterly dividend and received lowered credit ratings from Standard & Poor's and DBRS.

Armtec is a Guelph, Ont.-based manufacturer and marketer of industrial infrastructure products and engineered construction solutions.

Catalyst gains

Catalyst Paper said Monday it had hired UBS Securities to help it "address its capital structure," specifically the $250 million issue of 7 3/8% notes due 2014.

"With the recently announced extension and amendment of our asset-based lending facility, the next step is to identify appropriate opportunities to improve our balance sheet," said Brian Baarda, Catalyst's chief financial officer, in a statement.

A trader said Catalyst's 7 3/8% notes were "kind of unchanged" at around 611/2. Another trader saw the issue at 61½ bid, 62 offered.

"I guess that is up a little bit," the second trader said, noting that the debt had been around 60½ on Friday and in the high-50s prior to that.

Sino-Forest quieter, better

After experiencing wild gyrations during Tuesday trading, Sino-Forest's debt was "kind of quiet" and a few points higher, according to a trader.

"They melted down obviously yesterday," he said, referring to a 10-plus point decline in both the 10¼% notes due 2014 and the 6¼% notes due 2017 on news that hedge fund Paulson & Co. had divested its entire stake in the Chinese-Canadian timber company. "They probably rebounded a couple points today."

He placed the 6¼% notes "close to 40."

Stephanie N. Rotondo contributed to this review

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