Brookfield Office wraps roadshow; Quebec reopens 10-year notes; RBC notes flat in trading

By Cristal Cody

Prospect News, July 14 - Canadian bond markets stayed mostly flat on Thursday on light flow, with traders reporting a better bid for high-yield bonds.

The primary market was quiet on Thursday, but issuers are waiting in the pipeline. Brookfield Office Properties Inc. finished a roadshow on Tuesday to gauge investors' interest for a bond offering, one informed bond source said.

"Other than that, it's fairly quiet," the bond source noted. "RBC chose to issue in the U.S. yesterday like TD did last week, so we haven't seen a bank issue in Canada in a couple of months and banks are going in to a blackout in a couple of weeks ahead of earnings."

The U.S. high-grade bond market remains cheaper than Canada. Royal Bank of Canada "ended up saving about 5 or 6 basis points compared to their domestic funding levels, so it was relatively more attractive to issue in the U.S. right now," the bond source said.

Royal Bank of Canada's new five-year notes traded flat in the secondary market, and corporate spreads were mostly flat in trading on Friday. There was "slightly better buying but little movement in spreads," a source said.

On the high-yield side, though, bonds were better bid on Thursday. In addition, the Canadian high-yield market is 20 bps to 35 bps cheaper to U.S. high-yield bonds, an informed high-yield source said.

OPTI Canada Inc. continued to be busy as investors reacted to news the company had filed for creditor protections. There was even more news out Thursday, as the company announced its Long Lake production levels for the second quarter.

Provincial bond spreads mainly were flat on the day. A reopening from the Province of Quebec of its 10-year benchmark notes traded unchanged on Thursday, a provincial bond source said.

"[There's] not a whole lot going on," the source said. "Spreads haven't moved very much in the last couple of days. People are focusing right now on what's going on in the U.S. with the debt ceiling negotiations, and Europe has been relatively quiet today."

Government bonds traded weaker on the day after Moody's Investors Service put the United States on review for a downgrade late Wednesday.

"Canada's going along for the ride and outperforming U.S. Treasuries," a bond source said. "The long end of U.S. Treasuries is down a buck. Canada's long end is only down about 45 cents on the day."

Canada's 10-year note yield rose 2 bps to 2.95%. The 30-year bond yield rose 1 bp to 3.4%.

Brookfield Office roadshow

Brookfield Office Properties (DBRS: BBB) finished a roadshow on Tuesday, with the company "just looking to see what investors' interests are," an informed bond source said.

"They're looking to bring a five-year debt issue in the near future," the source said.

The deal is expected to be sized in the C$200 million area.

The commercial real estate corporation has headquarters in New York, Toronto and Sydney, Australia.

Quebec reopens 10-years

The Province of Quebec (Aa2/A+/DBRS: A) sold C$500 million in a reopening of the 4.25% benchmark notes due Dec. 1, 2021 at 104.007 to yield 3.779%, an informed source said Thursday.

The notes priced at a spread of 84 bps over the Government of Canada benchmark bond.

National Bank Financial Inc. was the lead manager. The co-managers were TD Securities Inc. and Scotia Capital Inc.

The bonds traded unchanged at 84 bps bid on Thursday, a source said.

RBC flat

The Royal Bank of Canada's new notes due 2016 traded mostly flat, firming 1 bp on the offer side to 88 bps bid, 87 bps offered on Thursday, a trader said.

The $1.25 billion offering of 2.3% five-year notes (Aa1/AA-) priced at a spread of Treasuries plus 88 bps on Wednesday.

The investment bank is based in Toronto.

OPTI higher again

A trader said OPTI Canada's 8¼% notes due 2014 were active and "up a few points," just one day after the Calgary, Alta.-based oil-sands producer said it filed for creditor protection in a Canadian court.

The trader quoted the notes at 45½ bid, 46 offered. He added that the 7 7/8% notes due 2014 were "in the same ballpark, basically."

Another trader, however, said he "didn't see as much activity in them" on Thursday as there was on Wednesday. Still, he saw the 7 7/8% notes rebound by about 3 points, closing around 451/2.

On Wednesday, OPTI said it had reached an agreement with the subordinated noteholders. Under the terms of the restructuring agreement, the company will convert the subordinated notes into common stock. Additionally, the company will undertake a C$375 million rights offering, which will be backstopped by certain members of the subordinated noteholder group.

The senior notes must be refinanced prior to the closing of the offering as a condition of the agreement.

Existing stock will be cancelled, though stockholders will receive warrants to purchase about 20% of the new shares in the rights offering.

Standard & Poor's cut the company's rating following the news Wednesday and Moody's followed suit on Thursday.

On Thursday, OPTI provided an update on its Long Lake joint venture project with Nexen Inc. In the second quarter, bitumen production rose to 27,900 barrels per day. However, the company said it remained unlikely that its 2011 forecast of between 38,000 and 45,000 barrels per day would be achieved.

"Based on lower than expected production since making this forecast, we do not expect to achieve this range," OPTI said in a statement.

Stephanie N. Rotondo contributed to this review

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