MEG Energy upsizes to $800 million; Great Canadian Gaming holds call; Quebec underperforms

By Cristal Cody

Prospect News, July 16 - Canadian primary action cooled on Monday while secondary spreads improved in provincial bonds but stayed weaker in corporates, informed sources said.

"It's dead quiet," one syndicate source said, adding there was "nothing to report on the issuance front. There's very little going on today."

Canadian issuer MEG Energy Corp. priced an upsized $800 million issue of 10.5-year senior notes (B1/BB) in the U.S. high-yield market, according to a syndicate source.

Canadian-dollar corporate issuance remains subdued in the investment-grade sector, while high-yield activity has picked up with two deals sold last week and a third expected this week from Great Canadian Gaming Corp.

Great Canadian held a national conference call on Monday in Toronto as it kicked off the last two days of a roadshow for a C$400 million offering of senior notes (B1/BB+/).

One investment-grade offering may price this week from Bangkok, Thailand-based PTT Exploration and Production PCL, according to a bond source. The petroleum exploration and production company (Baa1/BBB+/) held a Canadian roadshow hosted by Scotia Capital Inc. and HSBC Capital (Canada) Inc. that ended on Friday.

New provincial issuance likely will take a backseat over the next month, a bond source said.

"We always find the back half of July to be the ... quietest of the year," the source said. "We might get some issuance from one or two of the more frequent issuers up here but beyond that, we think it will be fairly quiet for the next few weeks."

In the secondary market, MEG Energy's notes rallied going out stronger, a trader said.

Canadian high-grade and high-yield bond spreads were mostly weaker.

The Markit CDX Series 18 North American high-yield index fell to 96.18 from 96.51 on Friday.

The Markit CDX Series 18 North American investment-grade index eased 1 basis point to a spread of 113 bps.

Quebec widens on rumor

Provincial bonds overall traded stronger on Monday.

"Spreads are having a good day," a source said. "The secondary market performed well - spreads are in between 1 and 2 basis points across the curve."

Part of the improvement is due to lack of provincial supply, but also on some additional buying on Friday, a source said.

"We saw some buying of long-dated provincials, which seemed to help out tone a little bit," the source said.

Bonds from the Province of Quebec are the exception and have traded wider on rumors of an announcement in August for a provincial election the following month, a bond source said.

"Quebec underperformed for most of last week," the source said. "As soon as the rumor came out, people thought Quebec might do a lot of issuance before that announcement."

Quebec's bonds have underperformed the Province of Ontario's bonds by 2 bps to 3 bps across the Quebec bond curve in the last week, the source said.

Foreigners set record buying

Canadian government bonds traded higher on a safe-haven bid. The 10-year note yield fell 2 bps to 1.62%. The 30-year bond yield edged down 1 bp to 2.24%.

The Bank of Canada will announce its monetary policy rate on Tuesday.

In economic news on Monday, Statistics Canada said foreigners acquired a record C$26.1 billion of Canadian securities in May, mainly in the form of government debt. Canadian investors purchased $1.3 billion of foreign securities in May, following a divestment in April.

Non-resident investors purchased C$16.7 billion of Canadian bonds in May, the largest inflow of funds in three years. The activity was led by a C$9.5 billion foreign acquisition of federal government bonds mainly on the secondary market across the bond curve.

Statistics Canada notes "Canadian long-term interest rates exceeded their U.S. counterparts in May by the largest spread since September 2011, just as the Canadian dollar depreciated against the U.S. dollar to the lowest level since September 2011."

Foreign investors added C$3.5 billion of federal government enterprise bonds in May, a fifth straight month of investments. The agency said the remainder of the inflows in the Canadian bond market was in provincial bonds, mainly U.S. dollar-denominated new issues and corporate bonds.

Canadians sold C$402 million of foreign debt securities, mostly U.S. Treasury securities.

Also in May, Canadian investors acquired C$442 million of foreign bonds, led by Canadian dollar-denominated bonds issued by U.S. companies.

MEG Energy prices at par

MEG Energy priced an upsized U.S. dollar-denominated $800 million issue of 10.5-year senior notes (B1/BB) at par to yield 6 3/8% on Monday, according to a syndicate source.

The yield printed at the tight end of price talk, which had been set in the 6½% area.

Barclays Capital Inc., BMO Capital Markets Corp. and Credit Suisse Securities (USA) LLC were the joint bookrunners for the quick-to-market deal, which was upsized from $700 million.

In the secondary market, the notes traded higher at 101.375 bid, 101.625 offered, a trader said.

The Calgary, Alta.-based oil sands development company plans to use the proceeds for general corporate purposes, including funding capital investments.

Great Canadian on roadshow

Great Canadian Gaming's roadshow for a C$400 million offering of 10-year senior notes (B1/BB+/) is expected to end on Tuesday in Toronto with pricing anticipated for mid-week, a syndicate source said.

The company started the roadshow last week in Vancouver, B.C., with stops in New York and Boston.

The deal will be offered in Canada via a private placement and in the United States by Rule 144A.

Scotia Capital Inc. and HSBC Capital (Canada) Inc. are the bookrunners. BMO Capital Markets, CIBC World Markets Inc. and RBC Capital Markets Corp. are joint lead managers. National Bank Financial Inc. is the co-manager.

The issue's guarantors are current and future material restructured subsidiaries and certain other restricted subsidiaries of Great Canadian.

The notes are non-callable for five years. The issue has a 101% change-of-control put, an equity claw up to 35% in the first three years at par plus the coupon and a Canada call at the Canadian bond yield plus 100 bps.

Proceeds will be used to refinance the company's U.S. dollar-denominated $161.1 million senior secured tranche B term loans due February 2014 and $170 million senior subordinated notes due February 2015 and their related cross-currency interest rate swaps. The company will start a cash tender offer and consent solicitation for the subordinated notes.

If either the tender offer or the sale of the 10-year notes is unsuccessful, the company said it may cancel, postpone or modify its refinancing plans.

The Richmond, B.C.-based gaming, entertainment and hospitality company has operations in Canada and the United States.

Paul A. Harris and Paul Deckelman contributed to this review

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