Canadian bank paper widens, Kinross Gold bonds active in trading; primary remains quiet

By Cristal Cody

Prospect News, Aug. 22 - Other than a small U.S. dollar-denominated offering announced from Selwyn Resources Ltd., Canadian bond activity stayed quiet during relatively calm markets on Monday, bond sources said.

If the tone continues, primary activity could pick up moderately with a few deals in the provincial and corporate bond markets, one bond source noted.

"There are a couple issuers interested in tapping the markets here, but it's really dependent on how things go overnight and how the markets open up tomorrow," the source said. "The last couple of weeks of summer are usually quiet ahead of Labor Day, but we may see some opportunistic issuance if market tone is decent."

The market also is reviewing potential regulation changes to contingent capital securities, which can be converted to common shares, after the Canadian Imperial Bank of Commerce secured approval from the Office of the Superintendent of Financial Institutions to treat three outstanding preferred share issues valued at C$881 million as contingent capital.

CIBC announced last week that its non-cumulative class A preferred shares, series 26, 27 and 29, will be treated as non-viability contingent capital for the purposes of determining regulatory capital under Basel III.

CIBC had announced on May 26 that it would seek to have the convertible preferreds treated as contingent capital, and market participants expect other banks to follow suit.

"Trying to catch up on these new proposals," one source said Monday. Otherwise, the day was "pretty quiet."

Overall corporate bond "spreads were a little under pressure today" and bank paper stayed wider, a source said.

One bond source said that bank deposit notes traded about 3 basis points to 4 bps wider and "subdebt was underperforming a little bit."

Bank credit default swaps also were wider.

"Bank CDS was tighter by 5 to 10 [bps] at the open and then widened throughout the day and at one point were 2 to 3 bps wider," the source said. "Overall credit is a little soft on the day."

Bank of America Corp.'s CDS saw particular pressure on Monday.

"Bank of America CDS are out 35 to 45 bps on the day, and there's particular pressure on their stock," the source said.

Bank of America's stock fell about 8% on continued lawsuit concerns and after a Jefferies analyst said the bank may need to raise up to $50 billion.

The Charlotte, N.C.-based bank's Canadian and U.S. high-grade bonds and subordinated debt widened in the previous week also.

Goldman Sachs Group Inc.'s CDS were out about 10 bps on reports that chief executive officer Lloyd Blankfein hired a defense attorney in connection with the Justice Department investigation into the Senate's Permanent Subcommittee on Investigations' report of Goldman's practices.

"They have bonds outstanding in Canada as well and that's putting a bit of pressure on them, which has flown into deposit notes and subdebt," a source said. "There's better selling of bank paper on the day."

As gold prices climbed on Monday, Kinross Gold Corp.'s new $1 billion offering of bonds was active in trading, according to sources.

Provincial bond spreads were mostly unchanged on the day, but slightly better in long-dated bonds, a bond source said.

"Ontario's longs are 88 bid after opening at 881/2," the source said, noting "not a heck of a lot of trading."

Government bonds edged higher on the longer end of the curve. The 10-year note yield fell 2 bps to 2.3%. The 30-year bond yield dropped to 2.95% from 2.97%.

Much market attention in Canada and the United States is focused on the outcome of the Federal Reserve's announcement following an annual bankers' meeting in Jackson Hole, Wyoming, on Friday. Last year after the meeting, the framework for the second round of quantitative easing was announced.

Selwyn to sell bonds

Vancouver, B.C.-based Selwyn Resources announced that it plans to sell $30 million of senior secured bonds, expected to be issued with attached warrants to purchase common shares, according to a Monday press release.

First Securities AS of Oslo, Norway, is managing the sale.

Proceeds will be used for the purposes of restarting the ScoZinc Mine, a past producing zinc-lead mine located in Nova Scotia, which Selwyn recently acquired.

Closing of the offering will be subject to certain conditions, including receipt of an amended industrial authorization for the expansion of the mine pit and relevant corporate resolutions.

Selwyn is a zinc and lead exploration and development company.

Kinross Gold mixed in trading

Canada's Kinross Gold's bonds were seen mixed in the secondary market as gold mining stocks climbed, traders said Monday.

The company priced $1 billion of senior notes (Baa3/BBB-/BBB-) in three tranches on Aug. 16.

The tranche of 3.625% notes due 2016 traded early in the day at 100.15 offered, a trader said. Late afternoon, another trader saw the five-year notes at 280 bps offered. Kinross sold the $250 million tranche at 99.595 to yield 3.714% with a spread of Treasuries plus 270 bps.

The $500 million tranche of 5.125% notes due 2021, which priced at 99.141 to yield 5.236% with a spread of 290 bps over Treasuries, was quoted early morning at 101.36 offered and later in the day flat at 290 bps offered, the traders said.

Kinross Gold's long bonds also were mixed, quoted higher in the morning at 103.20 offered, a trader said.

The company sold $250 million of the 6.875% bonds due 2041 at 99.181 to yield 6.94% with a spread of 315 bps over Treasuries. The 30-year bonds were quoted wider late afternoon at a 330 bps spread.

The mining and gold ore processing company is based in Toronto.

Paul A. Harris contributed to this review

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