Connacher Oil & Gas surges on takeout bid; Yellow Media lower; Quebec sells C$500 million

By Rebecca Melvin

New York, Dec. 9 - Connacher Oil & Gas Ltd.'s bonds surged on Friday after word that an unnamed party had made a bid for the Calgary, Alta.-based crude oil and natural gas exploration and development company, a high-yield trading source said.

The Connacher 8.75% notes due 2018 climbed to 94 bid, 96 offered from the low 80s.

Elsewhere, Yellow Media Inc.'s bonds slid into the upper 30s in a continuation of reaction to Standard & Poor's downgrade of the corporate rating early in the week.

In the provincial new issue market, the Province of Quebec stepped in and handily sold C$500 million in an add-on to its 4.25% bonds due Dec. 1, 2043. It was the first provincial issuance of the week after a busy few weeks previously, an analyst said.

The Quebec add-on priced at 110 to yield 3.67%, or 104.5 basis points over the corresponding Government of Canada benchmark, a bond source said.

Government bonds were lower. The 10-year note yield rose 7 bps to 2.07% from 2.00%. The 30-year bond yield also gained 7 bps to 2.66%.

In the flush of optimism over an agreement in hand among euro zone countries on fiscal budget limits, investors shrugged off negative domestic economic data, one source said.

The outcome of a two-day European Union summit was a promise of a new treaty to require a tougher budget discipline regime with automatic sanctions for those running a deficit in the single-currency area.

On the other side of the coin, Canada posted an unexpected trade deficit in October of C$885 million, following a revised C$1.03 billion surplus in September.

Market players had forecast a surplus of C$600 million in October. The deficit reflects weaker purchasing power in the U.S. and European economies, and it paves the way for lower growth in the fourth quarter.

Exports fell by 3% to C$38.37 billion in October on lower shipments of industrial goods and materials, and energy products. Imports grew by 1.9% to a record high C$39.26 billion on higher shipments of machinery and equipment.

"The market is shrugging off the data, and riskier assets are performing on the back of the E.U. summit news in the first risk-on day for a while," an analyst said.

"Yields are higher. But on the flipside, S&P will potentially have ratings actions if they are unsatisfied with the outcomes, and there are some downside risks, so one might start scaling back into the fixed income."

"The market has blinders on, and it's going to get splashed in the face next week," he said.

Connacher surges higher

Connacher Oil & Gas' 8¾% notes due 2018 rose to 94 bid, 96 offered on Friday, a trader said. Previously the bond was trading in the low 80s.

The jump came after the oil and gas company was made the subject of a bid from an unnamed party, a trader said.

"There is takeover speculation," the trader said.

In speculative play, there was continued selling of Yellow Media at 38.5 bid for the 15s through 20s. It had been as high as 46 bid, 47 offered, previously, he said.

The crude oil and natural gas company is based in Calgary, Alta.

Provincial spreads tighten

Eyeing the market and striking at the opportune moment, the Province of Quebec sold C$500 million of bonds to make its 4.25% notes due Dec. 1, 2043 an issue of C$2.5 billion outstanding. The province has an annual funding need of C$16 billion.

After a flurry of issuance in the last two weeks, "it's been quiet all this week, but today our friends in the Province Quebec sold C$500 million in a 2043 maturity reopening at 104.5 bps over the benchmark," a director of debt capital markets said.

"It was a pretty clean burn," the director said, referring to the fact that there were plenty of buyers and allocations sold quickly.

The last time Quebec added on to this issue was in October.

The director said that he thought the provincial market would be quieter for the next week and a half with the exception that the Province of Ontario might come in to try to reopen an issue. Ontario's annual financing need is C$35 billion.

"Both Ontario and Quebec may try to reopen issues. They have large financing programs in those two provinces, and they can't afford to stay out of the market for weeks or months at a time," the director said.

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