Lower Mattagami, FortisAlberta price; Xstrata, Ontario sell dollar deals; new paper firms

By Cristal Cody

Prospect News, Oct. 18 - Canadian issuers kept the primary market active in the domestic and U.S. markets on Thursday with two whopping deals, including a U.S. dollar-denominated $4.5 billion four-tranche offering from Xstrata Finance (Canada) Ltd.

Friday's pipeline likely will stay empty domestically, though Tervita Corp. is expected to sell $290 million of seven-year notes in the U.S. high-grade market, sources said.

"It's probably going to be busy through the rest of October and I know the November calendar is going to be steady," a syndicate source said. "We've got probably another four or five weeks of pretty steady business."

In Canada on Thursday, Lower Mattagami Energy LP sold C$200 million of 2.228% senior secured bonds due 2017 that firmed 2 basis points in afternoon secondary trading, a source said.

FortisAlberta Inc. upsized its 40-year medium-term note debenture offering to C$125 million from C$100 million.

"There was a bit of a new issue concession of like 2 to 3 bps, which we haven't seen in a long time, but having said that, it is a 40-year," a source said. "It didn't break tighter, which is a bit of a surprise, but it's a smallish deal."

FortisAlberta does a debt deal about once a year, according to sources.

The utility was in the market a year ago on Oct. 14, 2011 with a C$125 million offering of 4.54% bonds due Oct. 18, 2041 that priced at 99.984 to yield 4.541%, or 158 bps over the Canadian government benchmark.

The Province of Ontario brought its deal early and sold a U.S. dollar-denominated offering of $2.25 billion of 1.1% five-year notes (Aa2/AA-/) on Thursday.

Xstrata Finance's new four-tranche deal sold in the U.S. market tightened about 5 bps while bonds overall widened in U.S. trading, a source said.

"It's just a little cheap," the source said of Xstrata's new issue price.

Bank and financial paper overall traded 5 bps to 15 bps weaker, a trader said.

The Markit CDX Series 18 North American investment-grade index eased 1 bp on the day to a spread of 91 bps.

The Markit CDX Series 18 North American high-yield index fell to 101.35 from 101.75.

In other secondary trading, Pembina Pipeline Corp.'s Canadian dollar-denominated notes due 2022 sold the previous day traded 5 bps tighter on Thursday, a source said.

"There's been a little bit of trading, but not too much," the source said.

Government bonds backed off of some of the previous day's losses. Canada's 10-year note yield fell 2 bps to 1.90%. The 30-year bond yield ended 2 bps lower at 2.49%.

Canadian wholesale sales rose 0.5% in August, following two straight months of declines, Statistics Canada said in a report.

Lower Mattagami prices

In the domestic primary market, Lower Mattagami Energy (A2//DBRS: A) sold C$200 million of 2.228% senior secured bonds at par in a private placement, according to an informed bond source.

The series 2012-2 bonds due Oct. 23, 2017 priced at a spread of 81 bps over the Government of Canada benchmark, tighter than initial guidance in the 83 bps area.

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

The issue may be redeemed at the Canada bond yield plus 20 bps.

The bonds firmed 2 bps in the secondary market late afternoon.

"We traded a little bit," the source said.

Lower Mattagami Energy, a partnership of Ontario Power Generation Inc. and LM Energy Inc., operates hydroelectric generators on the Mattagami River.

FortisAlberta sells 40-years

In the other deal sold in Canada, FortisAlberta (Baa1/A-/DBRS: A) priced an upsized C$125 million of 3.98% 40-year medium-term note debentures at 99.94 to yield 3.983%, a source close to the deal said.

The debentures due Oct. 23, 2052 priced on top of guidance at a spread of 149 bps over the Government of Canada benchmark. The deal was upsized from C$100 million.

The deal was managed by a syndicate that included Scotia Capital Inc., BMO Capital Markets, CIBC World Markets, RBC Capital Markets LLC, TD Securities Inc., HSBC Capital (Canada) Inc., National Bank Financial Inc. and Casgrain & Co. Ltd.

The debentures were not seen actively trading late afternoon in the secondary market, a source said.

Calgary, Alta.-based FortisAlberta, a subsidiary of Fortis Inc., is an electricity distribution company for the Alberta area.

Ontario prices $2.25 billion

In the U.S. dollar market, the Province of Ontario sold $2.25 billion of 1.1% five-year notes (Aa2/AA-/) on Thursday at mid-swaps plus 25 bps, or Treasuries plus 35.95 bps, a market source said.

Pricing was at 99.864 to yield 1.128%.

The notes are non-callable.

Active bookrunners were Barclays, Citigroup Global Markets Inc., CIBC World Markets and Morgan Stanley & Co. LLC. Passive bookrunners were BMO Capital Markets, National Bank Financial, RBC Capital Markets, Scotia Capital (USA) Inc. and TD Securities (USA) LLC.

Xstrata sells $4.5 billion

In the day's biggest offering, Xstrata Finance (Canada) priced $4.5 billion of notes (Baa2/BBB+/) in four maturities on Thursday, a market source told Prospect News.

There was a $1.25 billion tranche of 1.8% three-year notes priced at a spread of Treasuries plus 140 bps. The bonds sold tighter than initial talk in the 160 bps area and at the low end of revised guidance in the 140 bps to 150 bps range.

A $1.75 billion tranche of 2.45% five-year notes sold at a spread of 170 bps over Treasuries. This was at a tighter level than initial talk in the 200 bps area and at the low end of revised guidance in the 170 bps to 180 bps range.

The $1 billion tranche of 4% 10-year paper priced at a spread of 220 bps over Treasuries. This was tighter than initial talk in the 250 bps area and at the low end of revised guidance in the 220 bps to 230 bps range.

Finally, there was $500 million of 5.3% 30-year bonds sold at a spread of Treasuries plus 235 bps. The bonds priced at a level tighter than initial talk in the 262.5 bps area and within the revised range of 230 bps to 250 bps.

Full terms of the offering were not available at press time.

The sale features a change-of-control put at 101%.

The bonds were priced under Rule 144A and Regulation S.

Barclays, J.P. Morgan Securities LLC, Mizuho Securities USA Inc. and RBS Securities Inc. were the bookrunners.

Xstrata was last in the U.S. bond market with a $3 billion offering in four tranches on Nov. 3, 2011.

The finance unit of mining company Xstrata plc is based in Toronto.

Xstrata firms

Xstrata's four tranches tightened mostly in secondary trading going out on Thursday, according to traders.

The company's notes due 2015 firmed 5 bps to 135 bps bid, 130 bps offered, one trader said.

The tranche of notes due 2017 traded better at 165 bps bid, 160 bps offered. Another trader saw the five-year notes at 170 bps bid, 155 bps offered.

The third tranche of notes due 2022 traded in to 215 bps bid, 210 bps offered and later at 209 bps bid, 200 bps offered, the traders said.

The long bonds firmed to 231 bps bid, 226 bps offered, according to one trader. A trader at another desk saw the bonds at 235 bps bid, 220 bps offered.

Pembina Pipeline tightens

In Canadian secondary trading, Pembina Pipeline's 3.77% senior medium-term notes due 2022 traded about 5 bps tighter at 184 bps bid, a bond source said on Thursday.

The company sold C$450 million of the 10-year notes (/BBB/DBRS: BBB) at a spread of 189 bps over the Government of Canada benchmark, or 189 bps over the Canadian bond curve.

Calgary, Alta.-based Pembina Pipeline is a transportation and service provider for the energy industry.

Andrea Heisinger contributed to this review

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