Sherritt breaks Canada deal lull; Bank of Nova Scotia taps U.S. market; Sherritt trades up

By Cristal Cody

Prospect News, Oct. 28 - Sherritt International Corp. broke the dry spell in Canadian high-yield primary activity with an upsized sale of C$400 million of seven-year senior notes on Friday, informed bond sources said.

"The book was significantly oversubscribed," one bond source said. "This essentially reopened the high-yield market because we haven't seen any issuance since the summer."

Two more deals are expected in the high-yield market in the week ahead, a bond source said.

Cara Operations Ltd. plans to sell C$75 million of senior second-lien guaranteed notes.

A source said the deal "probably will get done next week after the consent."

GreenField Ethanol Inc. will wrap its two-week roadshow on Wednesday for a C$175 million offering of five-year senior second-lien notes (/B+/DBRS: B), with pricing expected soon after.

Scotia Capital is leading both deals.

Other high-yield deals also are expected before the year is over.

"We're working on a few that we'll probably see come before Christmas," a syndicate source said.

Meanwhile, H&R Real Estate Investment Trust set the final size at C$100 million for its 4.9% senior debentures (DBRS: BBB), which priced late Thursday and was confirmed on Friday, an informed source said.

Also on Friday, the Bank of Nova Scotia priced $2 billion three-year covered bonds in the U.S. investment-grade market, following two deals from the Bank of Montreal and Royal Bank of Canada on Wednesday.

Tone was good throughout the day, although Canadian market activity waned by the afternoon.

"Typical for Friday/bank year-end," a source said.

High-yield bond spreads on the week were "up about half a point with things getting bid in the secondary market," a trader said.

In trading, Sherritt International's new notes and outstanding debt climbed higher on Friday.

Corporate high-grade bonds ended flat to weaker on the day.

The Markit CDX Series 17 North American high-grade index eased 1 basis point to a spread of 114 bps after coming in 13 bps the previous day.

Canadian government bonds erased some of the previous day's losses on Friday. The 10-year note yield fell to 2.42% from 2.47%. The 30-year bond yield fell 8 bps to 3.05%.

Sherritt prices, trades up

Sherritt International sold an upsized C$400 million of seven-year senior notes at par to yield 8%, within price talk, on Friday afternoon, an informed bond source said.

The notes due Nov. 2, 2018 (DBRS: BB) priced at a spread of 605.3 bps over the Government of Canada benchmark.

Sherritt held a roadshow for C$300 million of the notes on Thursday and early Friday.

GMP Securities LP and National Bank Financial were the joint bookrunners. Scotia Capital Inc. was the co-manager.

The deal was oversubscribed with about 50 buyers, according to another source.

Proceeds will be used to call and repay the company's outstanding C$273.5 million of 7 7/8% senior debentures due 2012 and for general corporate purposes.

In the secondary market, the notes traded higher at 100.25 bid, 100.625 offered, a trader said.

Sherritt International's outstanding 7 7/8% senior debentures due 2012 traded up 3 points to 106 on Friday since it was announced the company would call the bonds, the trader said.

Toronto-based Sherritt International produces coal and mines and refines nickel.

Bank of Nova Scotia prices

Bank of Nova Scotia tapped the U.S. high-grade market on Friday with the sale of $2 billion of 1.25% three-year covered bonds (Aaa/AAA/AAA) at 99.985 to yield 1.255%, a market source said.

The notes due Nov. 7, 2014 priced at a spread of 77.4 bps over Treasuries.

Bank of America Merrill Lynch, Barclays Capital Inc., Morgan Stanley & Co. LLC, Scotia Capital and UBS Investment Bank were the lead managers.

The financial services company is based in Toronto.

H&R REIT size

H&R Real Estate Investment Trust sold C$100 million of 4.9% senior debentures (DBRS: BBB) at par late Thursday.

Final sizing was completed on Friday, a source said.

The series E debentures due Feb. 2, 2018 priced at a spread of 295.6 bps over the Canadian bond curve.

CIBC World Markets Inc. and RBC Capital Markets Corp. were the bookrunners.

The proceeds will be used to repay bank debt, to fund future property acquisitions and for general trust purposes.

Downsview, Ont.-based H&R REIT owns office, single-tenant industrial and retail properties.

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