Hydro One, Enbridge price before markets widen on Federal Reserve plan; Hydro One firms

By Cristal Cody

Prospect News, Sept. 21 - Canadian issuers brought two deals in the bond and preferred stock markets on Wednesday before the Federal Reserve's plan for additional monetary easing sent securities lower late afternoon, sources said.

In the high-grade bond market, Hydro One Inc. (Aa3/A+/DBRS: A) priced C$300 million of long bonds to good demand, and the debt traded 4 basis points tighter in the secondary market.

Meanwhile, strong investor demand prompted Enbridge Inc. (Baa3/BBB/DBRS: Pfd-2) to upsize its offering of preferred shares by another C$200 million to sell a total of C$500 million on the day.

"We're on a run," a bond source said Wednesday.

That only lasted until the Federal Reserve's Federal Open Market Committee's statement was released early afternoon.

"Markets are just getting slaughtered," a bond source said late in the day. "Investment-grade industries are out 7 [bps] today from flat. The reaction today is definitely negative."

Government bond prices soared on the long end after the FOMC statement at the end of the two-day meeting.

Canada's 10-year note yield fell to 2.12% from 2.22%. The 30-year bond yield dropped to 2.76% from 2.88%.

The benchmark 10-year Treasury note yield fell to a record low of 1.85% from 1.93%. The 30-year Treasury bond yield dropped below 3% to 2.99% from 3.2%.

The FOMC plans to purchase by the end of June 2012 $400 billion of Treasuries with remaining maturities of six years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of three years or less.

"This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative," the FOMC said in the statement.

The negative reaction to the Fed's program, dubbed 'operation twist,' may keep issuers on the sidelines the rest of the week, depending on the Greek debt default resolution, a source said.

"We'll have to see what happens overnight in Europe," the source said.

Primary issuance in Canada's bond market remains low for the month. The month typically sees about C$10 billion in new deals.

"We're already halfway through for the month of September; we're a little behind schedule," a source said.

Enbridge upsizes preferreds

Enbridge said Wednesday that it sold C$500 million of cumulative redeemable preference shares to yield 4% a year for the initial fixed-rate period ending June 1, 2017.

The deal was upsized from C$300 million, or 12 million shares, to 20 million shares based on strong investor demand, the company said in a statement.

The series B preferreds were sold at C$25.00 per share.

The shares are redeemable by Enbridge on June 1, 2017 and on June 1 of every fifth year thereafter.

Scotia Capital Inc., RBC Capital Markets Corp. and TD Securities Inc. were the lead managers.

Proceeds will be used to reduce outstanding debt, for capital expenditures and for general corporate purposes.

Calgary, Alta.-based Enbridge is an oil and gas distributor and transportation company.

Hydro One sells bonds

In the bond market, Hydro One priced C$300 million 4.39% 30-year bonds at 99.901 to yield 4.396% on Wednesday, an informed bond source said.

The bonds due Sept. 26, 2041 priced at a spread of 154 bps over the Canadian government benchmark. The deal was launched early Wednesday at 155 bps, plus or minus 2 bps.

"It was a very small new issue concession," the source said, noting the deal was "well oversubscribed. It's a name people love - a regulated utility, a name people feel comfortable buying."

Scotia Capital Inc. and TD Securities Inc. were the lead managers.

In the secondary market, the bonds "traded as tight as 150 [bps] bid on the break," a source said.

Toronto-based Hydro One provides electricity in the Province of Ontario.

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