Canadian bonds quiet as holiday lull hits; Cash Store Financial languishes; Ontario prices

By Rebecca Melvin

New York, Dec. 14 - Trading in Canadian corporate bonds Friday was subdued with many market players beating an early exit for the weekend as the traditional holiday lull began to take hold.

"There is very little going on, with no trends," a Toronto-based trader said on Friday afternoon.

For the week, a name in focus in the high-yield space was the Cash Store Financial Services Inc., the bonds of which were languishing at low levels after tumbling early in the week on financial restatement news, the trader said.

Also in high-yield, Trilogy Energy Corp. was quiet but remained in focus after the Calgary, Alta.-based energy concern priced C$300 million of seven-year senior notes last week.

Corporate bonds overall were stronger with better bids even though new issuance in the last two to three weeks has been robust.

The supply was readily absorbed despite upsizings and pricings at the tight end of guidance," a market source said.

The pre-holiday period is typically strong in Canada, as issuers make their last strike for funding before year-end and investors eye an upcoming quiet period that lasts until early January, he said.

In addition, there are many coupon payments and debt maturities in December that free up cash to plow back into the new deals, he said.

"Usually, the year finishes strongly," he said.

New issuance has included Ford Credit Canada Ltd., which upsized an offering earlier this week from C$300 million to C$750 million, as well as Canadian Western Bank, which raised C$250 million in an offering of subordinated debentures on Tuesday, and Enbridge Income Fund Holdings Inc., which priced C$500 million of medium-term notes in two tranches that were upsized and came at the tight end of guidance.

"It's been a common theme," and, "the issues have gone well," a provincial bond strategist said, referring to the past two or three weeks since the U.S. Thanksgiving holiday.

Many of the deals tightened in the aftermarket.

The same was true of the provincial bond market, which was better bid this week, the provincial strategist said.

On Friday there was another new deal. The Province of Ontario priced C$600 million in a reopening of its 3.5% long bonds at 100 to yield 3.5% and at a spread of 103.5 basis points over the Government of Canada benchmark.

"Governments have been catching up with the euphoria," he said.

"Investors have been happy to buy credit. They are looking to put money to work and are often willing to stretch for income," he said.

The Ontario add-on was easily accomplished and traded better by about 0.5 point in the aftermarket, he said.

Overall, 10-year and longer provincial debt was seen better by 4 bps for the week, and five-year and short dated paper was better by 2 bps, the provincial debt strategist said.

"Quebec may be in a bp more and BC a bp less, but generically provincials were better, led by the long paper," he said.

Cash Store languishes

The Cash Store bonds were 74 bid, 75 offered on Friday, after having fallen from around 95 earlier this week.

"The bonds have fallen down this week after the company announced restating financials and restated loans receivable and loan loss provisions," a trader said. "It reduces the amount of assets."

The paper was marked down and collapsed in pretty active trade, he said.

All eyes will be on the company's earnings announcement next week to see if the bonds hold or drop more.

"We'll see if there is more to go when they announce next week," he said.

The trader didn't believe that management would be able to comfort investors enough to coax the bonds higher.

Ontario prices add-on

The Province of Ontario (Aa2/AA-/DBRS: AA) priced C$600 million in a reopening of its 3.5% long bonds at a spread of 103.5 basis points over the Government of Canada benchmark, an informed source said.

The bonds were offered at a 0.50 bps concession to the market.

"Ontario decided to do a 0.5 point concession recognizing tight spreads in the overall market," the market source said.

"It was a clean burn and quick, and is currently 103.5 bid on the broker screen," the market source said late afternoon Friday.

BMO Capital Markets Corp. was the lead manager, with National Bank Financial Inc. and RBC Capital Markets as co-leads.

Ontario last reopened the issue on Sept. 27 in a C$600 million add-on that priced at 103.62 to yield 3.311%, or a spread of 97 bps over the Government of Canada benchmark.

The total amount outstanding of this issue is C$6.45 billion.

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