Connacher drops after investor sells over company plans; quiet week forecast; banks firm

By Cristal Cody

Prospect News, Aug. 27 - Connacher Oil & Gas Ltd.'s Canadian and U.S. second lien notes dropped about 6 points in secondary trading over the last week after a single investor pulled out following the company's latest strategic review plans.

"There's a large seller who appears to be cleaning up," a trader said on Monday. "The bottom went down after the news they would sell the refinery because people had thought they would sell the entire company and that just caused one person to sell their entire bond position."

Connacher Oil & Gas, which has had a strategic review under way since it rejected an unsolicited takeover offer in December, announced on Aug. 14 that it agreed to sell its heavy oil refinery and related assets, and conventional oil and gas assets.

"This sale transaction represents one of the steps in the strategic review process initiated by the board of directors earlier this year," the company said in the statement. "Connacher's board of directors continues to actively pursue its strategic review process."

Connacher's Canadian 8.75% senior notes due 2018 (Caa2/BB-/) dropped 3.75 points in secondary trading going out on Friday at 79.5 bid and continue to trade lower at 77 bid on Monday, a trader said.

In July, the notes, which Connacher sold in a C$350 million offering on May 20, 2011 at par, traded at 88 bid.

The company's U.S.-dollar denominated 8.5% notes due 2019 (Caa2/BB-) also are trading lower at 79 bid.

"The seller cleaned up - that's why it's backed up around 80 bid," the trader said.

The integrated oil company is based in Calgary, Alta.

Light market activity

Canadian market activity stayed light on Monday ahead of the long holiday weekend, with bonds overall slightly better on the day, bond sources said.

The Canadian markets will close early on Friday and close, along with U.S. markets, on Sept. 3 for the Labor Day holiday.

"Not a whole lot," a bond source said of action over the day. "Pretty quiet."

The Markit CDX Series 18 North American investment-grade index firmed 1 basis point to a spread of 100 bps.

The Markit CDX Series 18 North American high-yield index rose to 98.22 from 98.06.

Government bonds traded higher. Canada's 10-year note yield fell 2 bps to 1.81%. The 30-year bond yield ended 2 bps lower at 2.39%.

Primary activity is expected to stay bare bones until after the holiday, according to informed bond sources in the high-yield, investment-grade and provincial markets.

On Friday, Melbourne-based telecommunications company Telstra Corp. Ltd. will hold a non-deal roadshow in Canada following a roadshow in the U.S. markets earlier in the week.

In the Canadian high-yield market, primary activity is expected later in the fall, bond sources said.

"We're going to have a new deal mid-September," one high-yield bond source said on Monday.

Bank paper firms

Canadian bank paper tightened about 1 bp on the day in the U.S. markets, a bond source said on Monday.

Paper from Bank of Nova Scotia, Bank of Montreal and Toronto-Dominion Bank traded flat to 1 bp better.

Scotiabank's 2.55% notes due 2017 (Aa1/AA-/) firmed 1 bp to 59 bps bid on Monday.

The Halifax, N.S.-based bank sold $1.25 billion of the five-year notes on Jan. 5 at Treasuries plus 172 bps.

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