Quebec sells $1.4 billion in U.S. deal; Canada markets quiet on light volume, bonds flat

By Cristal Cody

Prospect News, Aug. 18 - The Canadian corporate bond markets took a breather on Thursday as action picked up in government bonds and equities slumped, bond sources said.

No new issues were seen in the corporate or provincial markets, though the Province of Quebec did bring a $1.4 billion 10-year bond deal in the U.S. market on Thursday, sources said.

"It's been a very quiet day," one bond source said. "Spreads are widened out a bit. The way the markets are going, no one really wants to do any pricing. If it goes the way it is, it'll most likely be a quiet day tomorrow."

While investment-grade bond deals picked up in Canada over the week, the high-yield market has yet to see a deal this month.

"Won't be nothing this month," a Canadian source said, noting "maybe something in September."

Canadian high-yield bonds traded lower on the day on light volume.

The market is "down a bit, but there's not a lot of trading," a high-yield trader said. "Generally, everything's off maybe a quarter point."

In the secondary market, Videotron Ltd.'s bonds were "hanging in there" in trading on Thursday.

Precision Drilling Corp.'s bonds sold on March 10 also were holding in.

Kruger Products LP's 8% senior notes due Aug. 9, 2018 sold in July were lower but have not traded much, a source said.

Connacher Oil & Gas Ltd.'s Canadian dollar-denominated eight-year senior notes (Caa2/BB-) traded "unchanged to slightly down," a source said.

Canadian government bonds and Treasuries rallied, pushing yields to lows as stocks fell.

"Yields got a huge hit," one bond source said of Canadian government bonds and U.S. Treasuries. "Thirty years are down about 13 bps."

Canadian bond yields were down about 10 bps across the curve on Thursday. The 10-year note yield ended the day down to 2.29% from 2.35%. The 30-year bond yield dropped 8 bps to 2.95%.

The 10-year Treasury note yield fell below 2% at one point during the day but closed at 2.06%, down from 2.17% on Wednesday.

Stocks fell, fueled by global economic fears. The Dow Jones Industrial Average dropped 419.63 points, or 3.68%, to 10,999.58 on Thursday.

"The weakness in the equity markets is driving it and a combination of banking sector concerns in Europe when we came in and later on the weak U.S. data," a government bond source said. "The Canadian data was a non-event, but there's some speculation about what the Bank of Canada governor may say and the finance minister who both are speaking tomorrow."

The Bank of Canada's next meeting to discuss the key rate is Sept. 7. Rate cuts already are being priced into the market, but some market observers expect the bank to not cut rates until 2012.

"The market is priced for quite a worse-case scenario for Canada," the source said. "We don't think, in the Bank of Canada's scenario, they see in particular inflation being that weak to justify the 50 basis points or so cuts that are priced into Canada [now]."

Quebec sells $1.4 billion

The Province of Quebec sold $1.4 billion of 2.75% 10-year global notes on Thursday to yield 2.795%, said a source close to the sale.

The notes (Aa2/A+/AA-) are non-callable.

Full terms were not available at press time.

Bookrunners were Bank of America Merrill Lynch, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Scotia Capital (USA) Inc.

Proceeds are being added to the Consolidated Revenue Fund of Quebec and applied to the general expenses of Quebec, or advanced to the Financing Fund of Quebec.

Videotron hangs in

Bonds from Videotron (Ba1/BB/) are holding in weaker trading, according to a trader.

"It's doing OK," the trader said.

The company's 7 1/8% senior notes due Jan. 15, 2020 were seen at 103 bid, 104 offered on Thursday, down from 103.5 bid, 104.5 offered seen on Monday.

Videotron sold the notes on Jan. 7, 2010 at par.

Videotron is the cable, internet and mobile phone subsidiary of Quebecor Media Inc.

Connacher Oil drops

Connacher Oil & Gas' Canadian dollar-denominated notes dropped in the secondary market on Thursday, according to a trader.

The company's 8½% notes due Aug. 1, 2019 fell to 84 bid, 86 offered on Thursday, down from 86 bid, 87 offered on Monday.

Connacher sold the notes on May 20 in a C$350 million offering at par.

The integrated oil company is based in Calgary, Alta.

Precision Drilling steady

Precision Drilling's 6½% senior notes due 2019 (Ba2/BB+/) traded on Thursday at par bid, 101 offered in very light trading, a trader said.

The company sold C$200 million of the senior notes at par on March 10.

Calgary, Alta.-based Precision Drilling is an oil and gas industry equipment and services provider.

Kruger lower

Kruger Products' 8% notes due 2018 traded on Thursday at 99 bid, par offered, a trader said.

The company sold C$175 million of the senior notes (/B/DBRS: BB) at par on July 28.

Kruger is Canada's leading tissue products producer, with brands that include Cashmere, Purex and Scotties. The company is a subsidiary of Montreal-based pulp and paper producer Kruger Inc.

Catalyst and NewPage active

A trader said that Catalyst Paper Corp.'s bonds "fell pretty hard" - he saw the Richmond, B.C.-based paper manufacturer's 11% senior secured notes due 2016 down a deuce at 66 bid, 67 offered and its 7 3/8% notes due 2014 in a 28-31 context, calling the latter bond down 3 points.

Sector peer NewPage Corp.'s 11 3/8% first-lien senior secured notes due 2014 were at 80 bid, 81 offered at the end of the day, which he called down 1 point, while the Miamisburg, Ohio-based coated-paper manufacturer's 10% second-lien notes due 2012 traded for a while around 11-12, before finishing at 12 bid, 13 offered, "down a couple," on "decent volume - some trading. But the other one [the 11 3/8s] was much more active."

A market source saw the 11 3/8s among the most active issues in Junkbondland, with more than $19 million having changed hands. He quoted the bonds lower at 80¼ bid.

Andrea Heisinger and Paul Deckelman contributed to this review

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