National Grid sells C$750 million, Cominar prices C$125 million; Canadian junk bonds rise

By Cristal Cody

Prospect News, Sept. 11 - Canadian primary action on Tuesday included a C$750 million offering of five-year maple bonds from National Grid Electricity Transmission plc and a C$125 million five-year debenture reopening from Cominar Real Estate Investment Trust, informed sources said.

Canadian high-yield bonds were better on the day in secondary activity following a report from Moody's Investors Service that Canadian high-yield bonds offer better covenant protection than U.S. counterparts.

"Golftown's catching a bid," a trader said. "Everything's well-bid - you can't buy anything."

Other names that traded higher on the day included Connacher Oil & Gas Ltd. and in particular, Allied Nevada Gold Corp.

"It's up a couple of points," the trader said. "All the mining names are up. There's been a lot of focus on that lately, both from investors and issuers."

High-yield issuance in the Canadian market remains on the backburner, though some issuance is expected heading into the fall, according to bond sources.

Moody's said in a news release on Tuesday that Canadian high-yield bonds have tighter covenants, which provide more protection for investors than offerings by U.S.-based companies.

Domestic high-yield bonds denominated in Canadian dollars also offer more investor protection than high-yield cross-border bonds that Canadian companies issue in U.S. dollars, Moody's said.

"It's surprising because it's generally thought the covenants are weaker in Canada than in the U.S.," a Canadian high-yield bond source said on Tuesday. "That's always been the argument, but there's numerous cases where they are actually tighter. It's really hard to compare covenants because you have to take it case by case."

Stronger covenants

Moody's said it analyzed and assessed the covenant quality of about 1,000 bonds that were issued over the past two years globally.

"High-yield bonds issued by Canadian companies have stronger covenants than their U.S. peers, offering investors more protection," Ed Sustar, a Moody's vice president/senior credit officer, said in the release. "These protections include prevention of structural subordination, and preserving cash flow for debt service through tighter restricted payments and debt incurrence provisions."

The difference may be because of the limited number of investors in the still fairly new Canadian high-yield market, Moody's said.

Since 2010, non-financial speculative-grade Canadian companies have raised about C$9 billion in the domestic bond market, up from nothing in 2008, Moody's said. The figure is less than half the $20 billion of cross-border bonds that Canada-based speculative-grade companies raised in the U.S. market, and a fraction of the $3.3 trillion U.S.-based high-yield issuance during the same period, Moody's said.

Corporates better

Going out on Tuesday, corporates performed better, while government bonds ended weaker, according to bond sources.

The Markit CDX Series 18 North American investment-grade index firmed 1 basis point to a spread of 94 bps.

The Markit CDX Series 18 North American high-yield index rose to 100.24 from 99.88.

Canadian government bonds closed lower with yields up across the curve on stronger economic data. The 10-year note yield rose 3 bps to 2.86%. The 30-year bond yield traded up 2 bps to 2.44%.

Canadian housing starts rose to a seasonally adjusted annual rate of 224,900 units in August from 208,000 units in July, Canada Mortgage and Housing Corp. said.

National Grid prices

In Canada on Tuesday, National Grid Electricity Transmission priced C$750 million of 2.73% five-year maple bonds at par in a private placement, a bond source said.

The notes (A3/A-/A) priced at a spread of 132 bps over the Government of Canada benchmark.

RBC Capital Markets Corp. and TD Securities Inc. were the lead managers. Co-managers were CIBC World Markets Inc. and HSBC Capital (Canada) Inc.

National Grid is an international electricity and gas company that owns and maintains the electricity transmission system in England and Wales.

Cominar REIT reopens

Also in Canada, Cominar Real Estate Investment Trust (DBRS: BBB) sold a C$125 million add-on to its 4.274% five-year debentures at 101.174 to yield 3.999%, a bond source said.

The series 1 debentures priced at a spread of 260 bps over the Government of Canada benchmark.

National Bank Financial Inc. and BMO Capital Markets Corp. were the lead managers.

The debentures are redeemable at the Canada bond yield plus 74 bps.

Proceeds will be used to fund in part the acquisition of a portfolio of 68 office and industrial properties located primarily in the Montreal and Ottawa areas from GE Canada Real Estate Equity.

Cominar REIT first sold the issue on June 12 in a C$125 million offering that priced at par to yield a spread of 295 bps over the Government of Canada benchmark. The total outstanding is C$250 million.

Quebec City-based Cominar REIT holds office, retail and industrial properties in Quebec and Ontario.

Golf Town, Golfsmith see bid

In the secondary market, bonds from Golf Town Canada Inc. and Golfsmith International Holdings, Inc. rose in Tuesday's session, a high-yield trader said on Tuesday.

The 10½% senior second-lien notes due 2018 traded at 100.5 bid.

Golf Town and Golfsmith sold $125 million of the notes (/B/DBRS B low) at par on July 13.

Markham, Ont.-based Golf Town, which acquired Golfsmith, is a specialty golf retailer.

Allied Nevada Gold better

Allied Nevada Gold's 8¾% seven-year senior notes traded up to 103.5 as the mining sector continues to see more attention, a trader said.

The Reno, Nev.-based gold mining and exploration company sold C$400 million of the seven-year notes (B3/B/) at 98.716 to yield 9% on May 18.

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