CU, Great-West sell bonds, preferreds; Flakeboard plans deal; junk bond supply strong

By Cristal Cody

Prospect News, Nov. 15 - CU Inc. and Great-West Lifeco Inc. sold debt in Canada on Monday as trading stayed volatile on a sell-off in government debt and U.S. Treasuries.

CU priced C$125 million of 4.947% 40-year debentures at par to yield 126 basis points over the Government of Canada 5% 2037 benchmark bond on Monday, a source said.

The company sold the debentures on the lower side of original guidance of 129 bps.

RBC Dominion Securities Inc., BMO Nesbitt Burns Inc. and TD Securities Inc. were the bookrunners.

Proceeds will be used to finance capital expenditures, to repay existing debt and for general corporate purposes of ATCO Electric Ltd.

CU, a subsidiary of Alberta-based Canadian Utilities Ltd., is a holding company whose principal operating subsidiaries are ATCO Electric and ATCO Gas and Pipelines Ltd.

Government bonds tumble

Canadian government bonds fell, sending yields up. The yield on Canada's 10-year note rose to 3.148% from 3.06%.

In economic news, Statistics Canada said new vehicle sales rebounded in September, up 4.2% to 134,845 units on stronger truck sales.

U.S. Treasury yields climbed higher on maturities of five years and longer as the Federal Reserve kicked off the second purchase of its quantitative easing program to boost the economy, while a group of Republicans urged the Fed to reconsider the bond purchases.

The Federal Reserve said it will buy back $600 billion of Treasuries and started the first round with the purchase of $7.229 billion of short-dated government debt on Friday.

On Monday, the Fed bought another $7.923 billion of Treasuries due 2016 though 2017 and plans to buy a total of $105 billion of bonds over the next month.

The yield on the benchmark 10-year Treasury note soared to 2.95% from 2.77%.

Traders continued the sell-off on the long end of the curve on Monday, according to a source.

"Long Treasuries have been going down," the source said. "People were front running the Fed - they didn't deliver on what was expected."

Great-West sells preferreds

Great-West Lifeco sold C$250 million of non-cumulative five-year reset first preferred shares, according to a news release on Monday.

The 10 million shares of 3.65% series N preferred stock from Lifeco were priced at C$25 per share.

The preferreds, which compete with corporate bonds, were sold to good demand, a source said.

"It's all about yields," a source told Prospect News. "People aren't getting enough yield in bonds so they're going everywhere else. People are substituting preferred shares and common shares against bonds. Plus, the yields on preferreds are higher than bonds on an after-tax basis because it's equity."

BMO Capital Markets Corp., RBC Capital Markets Corp. and Scotia Capital Inc. are the lead bookrunners.

The sale is expected to close on Nov. 23.

Proceeds will be used for general corporate purposes to augment Lifeco's current liquidity position.

Winnipeg, Man.-based Great-West Lifeco is a financial services holding company with interests in the insurance, investment management, retirement savings and reinsurance sectors.

High-yield supply strong

Canadian high-yield supply is expected to stay strong with investors focused on new issues in Canada and the United States, according to a source.

"We anticipate as much as $750 million to $1 billion of Canadian HY supply from now until year-end," the source said.

In new activity, Newalta Corp. launched its roadshow for C$125 million of senior notes (B1).

"No formal price talk yet," one source said. "Hearing book is building very well already."

CIBC World Markets is expected to lead the offering.

Proceeds would be used to refinance bank debt.

Newalta is a Calgary, Alta.-based industrial waste management and environmental services company.

Flakeboard plans $225 million

Flakeboard Co. Ltd. plans to price a $225 million offering of seven-year senior secured notes (/B/) late in the present week, according to a market source.

J.P. Morgan Securities LLC and Goldman Sachs & Co. are leading the deal.

The notes come with four years of call protection.

Proceeds will be used to repay bank debt.

The prospective issuer is a Markham, Ont.-based manufacturer of composite panel products.

Paul A. Harris contributed to this review

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