RBC, BMO sell U.S.-dollar notes; Canada high-yield market wakes; utility bond deals eyed

By Cristal Cody

Prospect News, Oct. 26 - Two Canadian banks sold investment-grade bonds across the border on Wednesday, while the domestic market heated up on speculation of a new provincial deal and the announcement of Canada's third high-yield bond deal in the works.

Bank of Montreal sold $2 billion of 1.3% three-year covered bonds in a U.S.-dollar offering on Wednesday.

"The books filled quite rapidly on that and were north of $3 billion," a Canadian bond source said. "It was a very strong area for BMO in the U.S. dollar market in the three-year space."

The notes were seen trading 3 basis points tighter in the U.S. market, a trader said.

Also in the U.S. market, Royal Bank of Canada sold three-year fixed-rate and three-year floating-rate notes on Wednesday.

Canadian issuers may have hesitated on issuing bonds domestically, waiting to see the outcome of a European summit debt meeting, a bond source said.

In addition, many Canadian banks and dealers have their fiscal year-end on Oct. 31, keeping some out of the market because they do not want to hold any potential unsold product on the books, the source added.

Canada's investment-grade market may see more utility bond deals after Westcoast Energy Inc. (/BBB+/DBRS: A) priced C$300 million of medium-term notes in two tranches on Tuesday, a bond source said.

"Utilities tend to issue new deals at the end of the year," the source said. "In the pipeline, there are no names out there at this point, other than the high-yield names."

At least one high-yield bond sale is expected before the week is over, sources said.

Sherritt International Corp. plans to do a roadshow for a C$300 million offering of seven-year senior notes that are expected to price on Friday.

Also on the high-yield side, Cara Operations Ltd. is expected to sell C$75 million senior second-lien guaranteed notes to finance the acquisition of Prime Restaurants Inc.

Provincial supply awaited

Canada's provincial market also may see a new deal by Friday.

"No new issuance today. There was some speculation we might see a 10-year from Ontario, but nothing materialized," one syndicate source said.

The Province of Ontario may sell a new 10-year note since the province's benchmark June 2021 issue now has C$9.1 billion outstanding, the source noted.

"They may do another reopening of the '21s, but they're more likely to go to a new June 2022 issue," the source said.

Provincial bond spreads reversed their widening and firmed about 1½ bps across the curve from the previous day.

"Spreads had widened in anticipation of a potential new issue, and when none materialized, spreads proceeded to tighten back in a little bit," the source said.

Investment-grade bonds edged better on the day. The Markit CDX Series 17 North American high-grade index firmed 4 bps to a spread of 126 bps.

"Lately, it's been feeling better. We're still massively wider on spreads since August," a corporate bond source said.

Canada's government bonds reversed gains and sent yields higher across the curve on Wednesday as optimism grew for a European resolution to the region's debt problems. Canada's 10-year note yield added 9 bps to 2.37%. The 30-year bond yield rose to 3.02% from 2.93%.

Bank of Montreal prices

Bank of Montreal sold $2 billion of 1.3% three-year covered bonds on Wednesday at mid-swaps plus 50 bps, or Treasuries plus 84.9 bps, a market source said.

The notes (Aaa/AAA) were priced at 99.974 to yield 1.309%. They were priced under Rule 144A and Regulation S.

The notes are non-callable.

Bookrunners were Barclays Capital Inc., BMO Capital Markets Corp., J.P. Morgan Securities LLC and RBS Securities Inc.

In the secondary market, the notes firmed to 81 bps bid, 77 bps offered, a trader said.

The financial services company is based in Montreal.

RBC sells $1.25 billion

The Royal Bank of Canada sold two bond offerings on Wednesday. In the fixed-rate deal, the bank priced $1.25 billion of three-year senior notes to yield Treasuries plus 105 bps, according to an FWP filing with the Securities and Exchange Commission.

The notes (Aa1/AA-/AA) were priced at 99.962 to yield 1.463%. They are non-callable.

Bookrunners were RBC Capital Markets LLC and Goldman Sachs & Co.

The financial services company is based in Toronto.

RBC sells floaters

The Royal Bank of Canada also sold $750 million of three-year senior floating-rate notes at par to yield Libor plus 70 bps, according to an FWP filing with the SEC.

The notes (Aa1/AA-/AA) are non-callable.

Bookrunners were RBC Capital Markets and Goldman Sachs.

Sherritt to price this week

Sherritt International plans to do a brief roadshow on Thursday and Friday for its C$300 million offering of seven-year senior notes (DBRS: BB), according to an informed source.

The deal is set to price on Friday afternoon.

GMP Securities and National Bank Financial are the joint bookrunners. Scotia Capital is a co-manager.

The Toronto-based miner and refiner of nickel plans to use the proceeds to refinance its 7 7/8% senior debentures due 2012, including the make-whole premium, and for general corporate purposes.

Andrea Heisinger and Paul A. Harris contributed to this review

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