Canadian high-yield better bid; Videotron among gainers; Connacher Oil & Gas heads lower

By Cristal Cody

Prospect News, Aug. 15 - Canadian corporate bonds saw gains on Monday after bonds widened in volatile market conditions the previous week, bond sources said.

But, any plans for new deals in the Canadian high-yield sector continue to stay in the background.

"The market still has to settle down a little bit here," a syndicate source said. "If we have a relatively calm week, conditions would be good enough to start issuance again, but I don't know of any deals coming this week or even next week."

Market tone improved enough on Friday that Intact Financial Corp. sold C$300 million 10-year medium-term notes and the provinces of Ontario, Quebec and Alberta all brought bond deals.

In the secondary market, high-yield bonds recovered slightly on Monday after widening in trading last week.

"Today the market rallied," a high-yield trader said. "It's out maybe 2 to 3 points and today we're better by a quarter to half a point on not a lot of trading."

Canadian high-yield bonds underperformed U.S. high-yield bonds on the day, with the U.S. market "up about half a point to three-quarters of a point."

Bonds from Videotron Ltd. (Ba1/BB/) were among the actively traded names on Monday, the trader said.

Bonds from Videotron parent company Quebecor Media Inc. also traded on Monday.

Kruger Products LP's 8% senior notes due Aug. 9, 2018 sold on July 28 have not really traded, while Noranda Operating Trust's 6 7/8% senior notes due Dec. 28, 2016 dropped about "half a point but it's still better bid than some other new issuers that have really gotten killed," the trader said.

"The Canadian high-yield market has held in much better than the U.S. market, and people have looked to sell their Canadian-dollar product to move into U.S.-dollar product."

Bonds that have moved out in trading include companies with bonds in the Canadian and U.S. markets, such as Connacher Oil & Gas Ltd.'s 8½% notes due 2019 and Calgary, Alta.-based oil and gas industry equipment and services provider Precision Drilling Corp.

"Connacher is down probably 10 points," a trader said.

Equities rose on Monday on deal news that TD Bank Group will buy Bank of America Corp.'s Canadian credit card business and Google Inc. will acquire Motorola Mobility Holdings Inc.

Government paper weakens

Government bonds fell, sending yields up across the curve on Monday. The 10-year note yield rose 3 basis points to 2.5%. The 30-year bond yield added 4 bps to end at 3.13%.

"It's been fairly quiet but the market sold off in Canada," a government bond source said. "There's not a lot of new information driving it. Last week, we got to some extensive levels in Canada and the market was effectively pricing in the Bank of Canada cutting rates in the next three to six months. But a lot of people don't really believe the Bank of Canada is going to cut rates, and we're seeing that reverse the last few days."

The market started pricing in potential Bank of Canada cuts to the 1% key rate soon after the U.S. Federal Reserve said on Aug. 9 that it would extend low rates for two years. Now, many market participants expect the Bank of Canada to take a "wait-and-see" approach in response to what happens in the U.S. and European economies, the source said.

Connacher drops

The senior secured notes (Caa2/BB-) that Connacher Oil & Gas sold on May 20 in Canadian- and U.S. dollar-denominated tranches dropped further in secondary trading on Monday, a trader said.

"Connacher is a couple points cheaper in the U.S.," the trader said.

Connacher's Canadian notes due Aug. 1, 2018 traded on Monday at 86 bid, 87 offered. Connacher sold the C$350 million tranche at par to yield 8¾%.

The U.S. tranche of $550 million of notes due Aug. 1, 2019 traded in the U.S. markets at 83 bid, 86 offered, the trader said. The company priced the notes at par to yield 8½%.

The integrated oil company is based in Calgary, Alta.

Videotron up

Videotron's 6 7/8% senior notes due July 15, 2021 traded up half a point from Friday to 101 bid, 102 offered, a trader said Monday. The notes were sold on June 16 at par.

The company's 7 1/8% senior notes due Jan. 15, 2020 also were seen Monday trading at 103.5 bid, 104.5 offered. Videotron sold the notes on Jan. 7, 2010 at par.

Videotron is the cable, internet and mobile phone subsidiary of Quebecor Media Inc.

Quebecor Media trading

Quebecor Media's 7 3/8% senior unsecured notes due Jan. 15, 2021 (B1/B+/DBRS: BB/) also were active in trading on Monday but were mostly flat, a trader said.

The notes "are wrapped around par" in the secondary market, the trader said.

Quebecor Media sold the notes on Dec. 15 at par.

Montreal-based Quebecor Media is a subsidiary of Quebecor Inc., one of Canada's largest communications and media companies.

Noranda weaker

Newer high-yield bonds have stayed wider in trading, and Noranda Operating Trust's 6 7/8% five-year notes (DBRS: BB) traded down about a half a point in the secondary market on Monday, a trader said.

The company sold the senior notes due Dec. 28, 2016 at par on July 22.

Noranda Operating Trust is owned by Toronto-based Noranda Income Fund and has a 75% interest in Noranda Income LP, which owns the Canadian Electrolytic Zinc metal processing facility in Quebec.

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