Noranda Operating Trust issues C$90 million ahead of weekend; Cascades, Nortel stronger

By Cristal Cody

Prospect News, July 22 - Canadian bond market activity ended the week with a high-yield bond sale from Noranda Operating Trust on Friday, following the C$1.25 billion issuance of five-year senior deposit notes from Royal Bank of Canada the previous day.

Noranda Operating Trust saw great demand for the high-yield deal, the first in Canada since June, an informed bond source said.

Market tone improved as Europe worked toward a debt plan and U.S. budget deficit negotiations continued.

Looking ahead to the last week of July, at least one deal is expected from Kruger Products LP, which launched a roadshow earlier in the week for C$150 million of seven-year senior notes (expected ratings /B/DBRS: BB).

In the secondary market, Noranda's notes were "better bid," a trader said.

Cascades Inc.'s 7.75% five-year notes (Baa3/B+) also traded higher on Friday from the start of the week.

Nortel Networks Corp. was stronger in trading, as the paper has been steadily moving up since announcing its patent auction results.

Provincial bond spreads firmed 1 basis point to 2 bps, a bond source said.

"Spreads have come in a little bit based on some of the resolution globally, but nothing too spectacular," the source said.

Canadian government bonds rose on Friday, sending yields down, on softer Canadian inflation data. Statistics Canada said that core inflation slowed to 1.3% in June from a 1.85% gain in May.

Canada's 10-year note yield fell to 2.93% from 2.99%. The 30-year bond yield dropped 4 bps to 3.39%.

"The week as a whole has been very volatile, given how hawkish the Bank of Canada was, a lot more hawkish than anyone expected," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.

Speculation is growing as to when the Bank of Canada will raise the 1% key rate, which it left unchanged in Tuesday's meeting. The softer inflation data leads some to expect a later hike.

"We're still holding to our previous view where they'll spend most of the year on hold ... [not] moving officially until January of next year," Tulk said. "A lot has to go right between now and then for the bank to hike the rate; we think there's still more bad news out there."

Noranda oversubscribed

Early Friday, Noranda Operating Trust sold C$90 million of senior notes due Dec. 28, 2016 (DBRS: BB) at par to yield 6 7/8%, an informed bond source said.

The deal had 27 buyers and was three times oversubscribed, the source said.

Guidance on the notes was in the 7% area. The company completed the roadshow for the deal on Thursday.

CIBC World Markets Inc. and Scotia Capital Inc. were 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 redeemable prior to Dec. 28, 2013 at 101%. They are callable Dec. 28, 2013 at 103.438%; on Dec. 28, 2014 at 101.719% and on Dec. 28, 2015 and thereafter at par. The issue has a three-year 35% equity clawback and a 101% poison put.

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

In the secondary market, Noranda's notes traded higher at 101 bid, 102 offered, a trader said.

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.

Cascades trades higher

In the secondary market, Cascades' 7.75% notes due Dec. 15, 2016 traded higher Friday at 104.5, a trader said. The notes were seen trading on Monday at 104.12 bid.

The company sold the notes on Nov. 18, 2009 at 98.67 to yield 8%.

Cascades is a Kingsey Falls, Quebec-based producer, converter and marketer of packaging and tissue products.

Nortel edges up again

Nortel Networks' 10 1/8% notes due 2013 and its 10¾% notes due 2016 continued to firm in Friday trading, traders reported.

One trader placed the notes around the 115 level, though he added that there was "no significant amount of bonds trading."

Another trader said the bonds were a point better at 114½ bid, 115 offered.

The bonds have been moving into higher territory ever since the company completed an auction of its patent portfolio, awarding a consortium led by Apple Inc. the portfolio.

The group is paying $4.5 billion for the patents, $2.6 billion of which was footed by Apple.

Nortel, based in Toronto, filed for bankruptcy protections in January 2009.

Stephanie N. Rotondo contributed to this review

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