Primary expected to pick up; Cogeco firms 12 bps in trading; Canada junk bonds rally

By Cristal Cody

Prospect News, Nov. 12 - The Canadian high-grade market ended Friday softer, while junk bonds rallied, market sources said.

The high-grade market was mostly weaker after a week of four new deals, including from Cogeco Cable Inc., VW Credit Canada, Inc., AltaLink, LP and Capital Power Income LP, sources said.

Most of the new paper was "holding up OK in secondary" but was softer by 1 basis point to 2 bps, said Jason Parker, head of fixed income and research in Toronto at BMO Capital Markets.

"There was some spread softness generally on the week given the amount of new issuance," he said. "There's also the expectation for a reasonably active calendar next week."

However, Cogeco Cable's deal was helped by strong retail demand, and the new notes firmed 12 bps to 200 bps in trading on Friday, Parker said.

The company sold C$200 million of 5.15% senior secured debentures (DBRS: BBB) due Nov. 16, 2020 on Wednesday at 99.807 to yield 5.175%, or a spread of 219 bps over the Government of Canada's bonds due 2020.

"The retail investors are bringing them in quite a bit," Parker said.

The Montreal-based television, internet and telephone operator is a subsidiary of communications company Cogeco Inc.

Capital Power firmer

Capital Power Income's C$300 million of 10-year medium-term notes sold at par on Tuesday traded about 2 bps better on Friday.

The 5.276% notes (DBRS: BBB) due November 2020 priced at a spread of 229.1 bps over the Canadian benchmark bond.

"It's a little better bid," Parker said. "But it's not trading that much on the break."

Capital Power is a subsidiary of Edmonton, Alta.-based energy producer Capital Power Corp.

Canadian bonds mixed

Canadian government bond prices were mostly lower on Friday. The yield on the Canadian 10-year bond rose to 3.016% from 2.98%. The two-year note yield fell to 1.581% from 1.59%.

U.S. Treasuries moved lower, pushing yields up, as the first round of the Federal Reserve's bond purchase program got underway and as growing fears about China's monetary policy triggered a sell-off.

The yield on the 10-year benchmark Treasury note rose 15 bps to 2.77% from 2.62%. The two-year note yield added 8 bps to 0.50%.

On Friday, the Fed purchased $7.229 billion of Treasuries due 2014 through 2016. Dealers offered to sell the Fed $29.039 billion of debt.

The purchases are "oddly being used as one of the reasons for the Treasury sell-off, but the market was looking for $6-$8 billion," one trader said.

The Fed plans to buy about $105 billion of bonds over the next month as part of its $600 billion quantitative easing program to stimulate growth. The purchases in the week ahead mostly center on short-term maturities, with plans to buy smaller amounts of longer-term debt.

Junk bonds rally

In the Canadian high-yield market, bonds were stronger during the slow day after the markets were closed on Thursday for Remembrance Day, according to a source.

"Clients were buying in the secondary market," the source said.

Gateway Casino & Entertainment Ltd.'s new deal was among the standouts of the day.

Gateway Casino sold C$170 million of 8.875% senior secured second-lien note (B3/BB-e/) due 2017 on Nov. 5 at par to yield 660 bps over federal benchmarks.

"They're wrapped around 104," the source said. "But not much is trading."

The company is based in Burnaby, B.C.

Angiotech moves up

Despite a generally weak market, Angiotech Pharmaceuticals' 7¾% notes due 2014 managed to earn "a couple points," according to a trader.

He placed the paper in the low-50s, while another quoted them at 52 bid, 52½ offered.

"They are slowly moving up," the second trader said.

On Tuesday, the Vancouver, B.C.-based biotech company reported a loss of $18.5 million, or 22 cents per share. That compared to a loss of $7.8 million, or 9 cents per share, for the same quarter of 2009.

Revenues, however, increased by 7% to $59 million.

Angiotech announced in late October a recapitalization plan that would reduce its debt by $250 million. Under the plan, senior subordinated noteholders would receive 93.5% of Angiotech's common stock.

The company would keep its $325 million of senior floating-rate notes outstanding.

Angiotech is seeking at least 98% of participation by debtholders. The consent deadline is Jan. 7.

Stephanie N. Rotondo contributed to this report

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