Royal Bank of Canada breaks deal drought; Noranda Trust guidance out; OPTI up 12 points

By Cristal Cody

Prospect News, July 21 - In Canada's first high-grade corporate bond sale in more than a month, Royal Bank of Canada brought an upsized C$1.25 billion of five-year senior deposit notes on Thursday.

"Early on, earnings were decent, and later on the news out of Europe put a good tone to everything," a bond source said. "The deposit note I don't think has had a lot of extra juice, no concession, but it was $1.25 billion, which is not a bad size either."

In the high-yield market, Noranda Operating Trust wrapped its roadshow on Thursday with initial guidance for an offering of C$90 million of senior notes due December 2016.

OPTI Canada Inc. held in at its recent highs in the secondary market. The bonds had gained as much as 12 points in the previous session on news that the company was selling itself to a Chinese offshore oil company. But not everyone is pleased with the news.

Meanwhile, Nortel Networks Corp.'s bonds ended mixed on the day, though traders were not sure what caused one issue to drop 3 points.

Canadian government bonds finished lower with yields up 2 basis points to 5 bps on Thursday. The 10-year note yield rose 5 bps to 3%. The 30-year bond yield rose to 3.44% from 3.39%.

The market expects the Bank of Canada to increase rates sooner than later this year on stronger growth in the second half of the year. The Bank of Canada kept the 1% key rate unchanged in Tuesday's meeting.

Goldman Sachs said in a research note on Thursday that rate hikes now are expected in September instead of in December.

"The Bank of Canada this week signaled rate hikes are coming closer, reaffirming an expectation of faster growth in the second half, noting 'slightly firmer-than-anticipated' core inflation, and dropping 'eventually' from its forward-looking language suggesting that stimulus will need to be withdrawn," according to the note. "We now think the hiking cycle will start at the September meeting, and have brought forward the hiking profile to that effect. This puts us roughly speaking at around 100 bps in hikes over the next 12 months compared to the market, which is discounting around 50 bps at the current juncture."

RBC sells C$1.25 billion

Royal Bank of Canada (Aa1/AA-/DBRS: AA) priced an upsized C$1.25 billion of 3.03% five-year senior deposit notes at 99.959 to yield 3.039% on Thursday, an informed bond source said.

"It was a good deal," another bond source said.

The notes due July 26, 2016 priced at a spread of 77.9 bps over the Canadian government benchmark.

The deal was upsized from C$750 million.

RBC Capital Markets Corp. was the bookrunner.

The investment bank is based in Toronto.

Noranda guidance emerges

Guidance on Noranda Operating Trust's offering of C$90 million of senior notes due December 2016 (DBRS: BB) is in the 7% area, an informed bond source said Thursday.

The company wrapped its roadshow for the deal on Thursday.

CIBC World Markets Inc. and Scotia Capital Inc. are the bookrunners.

The notes are guaranteed by Noranda Income Fund, Canadian Electrolytic Zinc Ltd., Noranda Income LP and NILP General Partner Ltd. N-Zinc Ltd. is a special guarantor.

The notes are callable in December 2013 at par plus 50% of the coupon; December 2014 at par plus 25% of the coupon and at par in December 2015 and thereafter. The issue has a three-year 35% equity clawback and a 101% poison put.

Proceeds will be used to repay debt outstanding under the bridge facility and for general corporate purposes.

Noranda Operating Trust is owned by Toronto-based Noranda Income Fund and has a 75% interest in Noranda Income LP, which owns the Canadian Electrolytic Zinc metal processing facility in Quebec.

OPTI bonds steady

OPTI Canada's subordinated debt was holding in at its recent levels around 65 after popping 10 to 12 points in the previous session on news that Cnooc Ltd. had made a $2.1 billion offer for the bankrupt oil-sands producer.

"They weren't too much different," a trader said of the 7 7/8% and 8¼% notes due 2014, which he pegged at 64 bid, 65 offered.

The Calgary, Alta.-based company has already approved the sale, which includes the purchase of all the outstanding equity for $34 million and the assumption of more than $2 billion of debt.

OPTI, which filed for creditor protections in Canada just last week, said the deal was in the company's "best interest."

The purchase of the stock works out to about 12 cents per share for the equity. Some market players are somewhat relieved that shareholders received anything, but some shareholders were not as pleased.

In the comment section of a blog on The Globe and Mail's website, user BDouglasF decried the sale.

"OPTI shareholders like myself are getting shafted," he wrote. "OPTI announces they are filing for bankruptcy and the next day they report that production is going up while at the same time production costs are going down.

"This would have increased the stock price. With oil prices remaining high and no doubt going higher, the debt could have continued to be served for some time to come. Were [sic] management feathering their nests? Stock market regulaters [sic] need to investigate the fishy goings on around the bankruptcy, restructuring and takeover of OPTI. The Chinese are getting millions of barrels of proven reserves for about $30 a barrel as well as the ever improving SAGD and upgrading technology."

Nortel ends mixed

A trader said Nortel Networks' 10 1/8% notes due 2013 and 10¾% notes due 2016 were a "smidge better" but were "probably topping out" around 113½ bid, 114 offered.

However, he said the 6 7/8% notes due 2023 was the company's "one outlier," as the debt lost 3 points to close around 73.

Another trader also deemed the 6 7/8% notes 3 points weaker at around the 73 level, while "the other ones look up about a point" at around 114.

Earlier in the week, the Canadian government said it would not review the recent $4.5 billion sale of the company's patent portfolio to a consortium led by Apple Inc. and including Microsoft Corp. There has been few details regarding how the group will divvy up the portfolio, but it was announced Thursday just how much Apple paid for its participation.

According to the company's earnings, which came out Wednesday, Apple footed over half of the bill, paying $2.6 billion.

Nortel is a Toronto-based telecommunications equipment manufacturer.

Stephanie N. Rotondo contributed to this review

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