BMO Capital expands high-yield desk, expects Canadian market to grow

By Cristal Cody

Prospect News, April 8 - BMO Capital Markets Corp. is seeing bigger growth ahead for the Canadian high-yield market, so much so they announced the addition of two traders dedicated to Canada, the company said in an interview with Prospect News.

"The market is growing from both an investor perspective and also from supply perspective," David Weiss, head of leveraged finance distribution and trading, said Friday. "For the moment, both in the United States and Canada, the demand for high yield bonds is exceeding the supply of high-yield bonds."

In 2010, companies sold $319 billion in high-yield bonds and almost C$3.5 billion in Canada - "approaching 3½ times of the previous year," Weiss noted.

Canadian issuers may issue their bonds in Canadian or U.S. dollars.

"So far the amount of issuance in U.S. dollars has exceeded that of Canada dollars," he said. "That's because the investor community hasn't been fully developed in Canada. As that community continues to evolve and grow in size, that will give more reasons and better execution for companies to issue in Canadian dollars."

The high-yield market also is enticing some interest from high-grade buyers, especially deals with higher credit ratings, he said. "But on any given deal, we see at least 10% to 20% of interest coming from investment-grade buyers," he said.

"Canadian companies since 2000 have issued upwards of $60 billion of bonds, with 90% of that done in U.S. dollars, 10% in Canadian dollars," Weiss said. "As those deals need to be refinanced, we think we will see a lot of that refinancing done in Canadian dollars."

BMO Capital, the investment and corporate banking arm of BMO Financial Group, is in the building phase of the high-yield group, which includes the addition of Dan Atack, managing director, and Piper Kerr, director, to the BMO Capital Markets' leveraged finance distribution and trading team.

Based in Toronto, the new traders will be focused solely on trading in the Canadian dollar high-yield market and will work closely with the firm's syndicate and debt capital markets and sales teams, as well as Ted Lunney, head of U.S. high-yield trading. BMO's New York traders will focus on U.S.-denominated high-yield bonds.

"We are focused on mid-cap and growth companies (market cap of $200 million to $5 billion with exceptions being companies we began financing at an earlier stage in their growth)," Weiss said. "We cover the market more broadly than anyone else in the United States. Now we will have traders in both the United States and Canada."

BMO has moved up to the top ranking in Canadian high-yield deals to date from Jan. 1 to April 4, he said.

"At the same time, we've also improved our rankings in the United States over a similar period of time for the quarter. We ranked No. 16 in U.S. high-yield year-to-date, versus No. 32 a year ago," he said.

BMO Capital Markets was the sole bookrunner for the recent deal from Perpetual Energy Inc., which was the firm's first sole bookrunner mandate for a Canadian dollar high-yield transaction.

In addition to Perpetual Energy, BMO was a joint book runner for the recent bond sales from Paramount Resources Ltd., Skylink Aviation Inc. and Ford Credit Canada Ltd. BMO also acted as a co-manager on other Canadian-denominated deals for Livingston International, Quebecor Media Inc., Vermilion Energy Inc. and Armtec Holdings Ltd.

BMO's North American high-yield financial services operations are based in New York and Toronto and focus on both U.S. and Canadian high yield investors and issuers. The full-service North American financial services provider led 365 capital raising and merger and acquisition transactions totaling $120 billion for clients in 2010.

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