Canada Housing, Sherritt tap mortgage bond, junk markets; Ontario dollar deal 'expensive'

By Cristal Cody

Prospect News, Sept. 19 - Canadian primary action on Wednesday included offerings in the mortgage bond and high-yield markets, while the Province of Ontario and Valeant Pharmaceuticals International Inc. announced plans for two U.S. dollar deals, informed sources said.

In Canada's high-yield market, Sherritt International Corp. sold an upsized C$500 million of eight-year senior debentures at par, with the bonds up 2½ points later in secondary trading.

The deal had 80 buyers and was two times oversubscribed, a syndicate source said.

The issue "went very well," the source said.

In the day's other deal, Canada Housing Trust raised C$5 billion in an offering of five-year Canada mortgage bonds early on Wednesday, a source close to the sale said.

"We had international distribution of around 25% that priced offshore," the source said, noting. "good breadth and quality of the order book. We were fortunate in the last couple of days; we had a pretty good platform to launch a deal. The markets have been quite stable."

Canada Housing Trust's bonds traded wrapped around the issue price in the secondary market.

Mortgage bonds overall have traded unchanged over the week.

"We saw some spread tightening across the CMB curve right after the FOMC announcement," the syndicate source said, "so we were a little bit concerned going into a C$5 billion deal given that kind of performance, but CMB spreads have really stabilized the last couple of days."

Corporate bonds ended Wednesday moderately better. The Markit CDX Series 18 North American investment-grade index firmed 1 basis point to a spread of 85 bps.

The Markit CDX Series 18 North American high-yield index inched up to 102.06 from 102.01.

U.S. deals on tap

In the U.S. market on Thursday, the Province of Ontario plans a benchmark-sized offering of seven-year global notes, sources said on Wednesday.

"It has guidance of mid-swaps plus low to mid 40s area, which is 15 to 17 basis points more expensive than where they could do a domestic deal," one source said.

The offering is considered a "smart deal to do," the source said. "It's always good to diversify your investor base and diversify your funding sources. It was very prudent of Ontario to have done this deal."

In addition to the Province of Ontario, Mississauga, Ont.-based Valeant Pharmaceuticals International plans to sell $2.25 billion in three tranches of notes in the U.S. market on Thursday.

Looking ahead, Vancouver, B.C.-based copper exploration and production company Petaquilla Minerals Ltd. announced plans to start a U.S. roadshow on Monday for $210 million of five-year senior secured notes while underway in a hostile takeover bid from Inmet Mining Corp.

Other Canadian issuers had been expected to tap the U.S. markets, but the rest of the month may be out for new dollar offerings, a source said.

"The arbitrage levels have moved away and it's become more expensive for Canada names to go to the U.S. dollar market over the last week or so," one source said.

Deal activity for the week ahead is expected to be light at the start due to a Euromoney Canadian debt capital markets investor forum in New York on Tuesday.

"I think a lot of Canadian issuers are probably going to that conference," a bond source said.

Companies and provinces registered to attend include General Electric Capital Corp., major banks and the provinces of Alberta, British Columbia, Manitoba and New Brunswick, according to conference details.

Canadian government bonds traded higher on Wednesday after the Bank of Japan became the latest central bank to provide more monetary easing. Canada's 10-year note yield fell to 1.88% from 1.92%. The 30-year bond yield dropped to 2.45% from 2.49%.

Canada Housing Trust prices

In an offering that had been expected for a couple of weeks, Canada Housing Trust (Aaa/AAA/DBRS: AAA) raised C$5 billion of 1.7% five-year Canada mortgage bonds on Wednesday at 99.777 to yield 1.745%, an informed bond source said.

The bonds due Dec. 15, 2017 priced on top of guidance at a spread of 34 bps over the Government of Canada benchmark.

TD Securities Inc. was the lead coordinator. Joint lead managers were BMO Capital Markets Corp., CIBC World Markets Inc. and RBC Capital Markets Corp.

The trust is a unit of Canada Mortgage and Housing Corp., which provides financing, mortgage loan insurance, mortgage-backed securities and housing policy and programs.

Sherritt upsizes

On the corporate side, Sherritt International sold an upsized C$500 million of senior debentures due Sept. 24, 2020 on top of guidance at par to yield 7½% on Wednesday, an informed bond source said.

The debentures (DBRS: provisional BB) priced at a spread of 579 bps over the Government of Canada benchmark.

The deal was upsized from C$400 million.

National Bank Financial Inc. and Scotia Capital Inc. were the joint bookrunners. Co-managers were GMP Securities LP, CIBC World Markets and TD Securities Inc.

The notes have a 101% change-of-control put. The issue is redeemable in the final year before maturity at par and is redeemable at any time, in whole or in part, prior to that time, at par plus the Canada yield price.

Proceeds will be used to fund the redemption of the company's C$225 million outstanding of 8¼% series B debentures due Oct. 24, 2014 and for general corporate purposes.

In secondary trading, the bonds traded up to 102.5 bid.

Toronto-based Sherritt produces coal, oil, gas and power and mines and refines nickel.

Ontario seven-year notes eyed

The Province of Ontario is planning to do a benchmark-sized offering of seven-year global notes on Thursday, a source away from the trade said Wednesday.

The notes (Aa2/AA-/) are being talked in the range of mid-swaps plus 40 bps to 44 bps.

Bookrunners are Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC, HSBC Securities (USA) Inc. and Scotia Capital USA Inc.

Ontario was last in the U.S. bond market with a $1 billion sale of 10-year notes on June 22.

Proceeds will be used for general provincial purposes.

Valeant to sell $2.25 billion

Valeant Pharmaceuticals is expected to price a $2.25 billion three-part offering of notes (B1/BB-) on Thursday, according to a buyside source.

The deal was announced as Wednesday's business but was subsequently pushed into the Thursday session, the source added.

Included is a $500 million fungible add-on to the company's 7¼% notes due July 15, 2022. Although there is no official price talk, guidance is 104.75 to 105, the source said. Proceeds from the add-on will be used for general corporate purposes, including acquisitions.

In addition the company is expected to bring a $1 billion non-fungible tranche of notes mirroring its 7% notes due 2020 and a $750 million non-fungible tranche of notes mirroring its 7¼% notes due 2022.

Those tranche sizes remain in play, the source said.

Again, there is no official talk. However the mirror notes are expected to come approximately 25 bps behind the existing notes, the source said, adding that the 7% notes due 2020 are trading at 105.75 bid, 106.5 offered and the 7¼% notes due 2022 are trading at 106 bid, 107 offered.

Proceeds from the mirror notes tranches will be used to help fund the acquisition of Medicis Pharmaceutical Corp.

J.P. Morgan Securities LLC, Goldman Sachs & Co. and RBC are the joint bookrunners. Bank of America Merrill Lynch and Morgan Stanley & Co. are the senior co-managers.

Barclays, SunTrust Robinson Humphrey, DNB and Scotia Capital are the co-managers.

The prospective issuer is a specialty pharmaceutical company.

Andrea Heisinger and Paul A. Harris contributed to this review

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