British Columbia, Ontario reopen bonds to raise funds; Fairfax Financial upsizes offering

By Cristal Cody

Prospect News, Sept. 27 - Two Canadian provinces reopened bond issues on Monday to raise additional funds, sources said.

The Province of British Columbia reopened its bond due June 2042 to price an additional C$500 million on Monday to a strong reception, sources told Prospect News.

The 4.3% bonds priced at 82 basis points over the government of Canada 4% 2041 benchmark bond for a yield of 4.187%.

The lead bookrunner of the reopening was RBC Capital Markets Corp.

"It's still trading there," a source said late Monday.

Also on Monday, the Province of Ontario sold C$750 million in a reopening of bonds due 2041, according to a source.

Ontario sold the 4.65% bonds at 88.5 bps over the Canadian government benchmark bond to yield 4.242%.

The lead bookrunner of the deal was TD Securities Inc.

The bonds continued to trade in the pricing range late in the day, a source said.

The two deals priced on the long term were slightly unusual.

"Seeing two deals in one day is a pretty strong indication of investor demand," a source said. "Issuers will be looking at this market. Sometimes decent reception of an issue draws out additional issuers."

The previous week, Quebec priced C$500 million in a reopening of its 4.5% provincial bonds due 2020 at 91.5 bps over government benchmark bonds on Sept. 21.

Fairfax upsizes preferreds

Elsewhere in the Canadian market, Fairfax Financial Holdings Ltd. on Monday launched an upsized C$250 million in preferred shares.

The company will issue 10 million shares of series I preferred shares at C$25 each. Fairfax initially intended to sell 8 million shares, but said the deal was increased "as a result of strong investor demand."

The offering was distributed in Canada.

The bookrunners on the deal were BMO Capital Markets Corp., CIBC World Markets Inc., RBC Capital Markets Corp. and Scotia Capital Inc.

The shares carry a cumulative quarterly fixed dividend yielding 5% annually for the initial five-year period ending Dec. 31, 2015. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current five-year Government of Canada bond yield plus 285 bps.

Holders will have the right to convert the shares into series J preferred stock on Dec. 31, 2015 and on each Dec. 31 every five years thereafter. Holders of the series J preferred shares receive cumulative quarterly floating dividends at a rate equal to the then current three-month Government of Canada Treasury bill yield plus 2.85%.

Fairfax said it will use the proceeds to augment its cash position, increase short-term investments and marketable securities, retire outstanding debt and other corporate obligations and for general corporate purposes.

The deal is expected to close on Oct. 5.

Fairfax Financial Holdings is a Toronto-based financial services holding company involved in property and casualty insurance and reinsurance and investment management.

Canadian government bonds rally

Canadian government bonds rallied in tandem with U.S. Treasuries.

"We saw a pretty nice rally in the government bond market on a dose of pessimism that comes out of the U.S. once again," said Eric Lascelles, chief Canada macro strategist at TD Securities Inc. in Toronto. "Part of it is soft economic data and part of it is the market ratcheting up the prospect for quantitative easing."

The Canadian government 10-year note yield fell 5 bps to 2.803% on Monday. Canada's two-year note yielded 1.425%, down from the market open of 1.47%.

U.S. Treasuries rallied on the successful auction of $36 billion in two-year notes. The rally was also fueled by continued economic fears, on concerns that European banks may need more funds and on continued chatter the Federal Reserve will buy more government debt to boost the economy.

Moody's Investors Service downgraded Allied Irish Banks plc's unguaranteed senior debt to Baa3 from A3.

The yield on the Treasury's 10-year benchmark note fell to 2.53% from 2.61%. The Treasury's two-year note fell 2 bps to 0.42%.

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