Quebec sells C$500 million add-on in tough market; primary action dries up; bonds softer

By Cristal Cody

Prospect News, Aug. 3 - Only one issuer came with a deal in Canada's bond markets on Wednesday, and issuance is expected to remain flat to light over the rest of the week as global growth fears grow, according to sources.

"Very little [is] in the pipeline right now," one bond source said. "The markets are quite volatile and it's tough to bring a new issue. Unless the market is very good tomorrow or Friday, we don't expect anyone else to come to market."

In the lone offering on Wednesday, the Province of Quebec (Aa2/A+/DBRS: A) sold C$500 million in a reopening of the 4.25% 10-year benchmark notes.

Quebec's deal tapped specific investor demand, but some bonds were left over and the deal "wasn't a clean burn," a bond source said.

Corporate bonds saw "better selling throughout the day through both financials and non-financials," the source said.

Corporate bonds in general were about 2 basis points softer on the day. Provincial bond spreads ended about ½ bp wider from the start of the day but have been trading stronger, the source said.

The Province of Nova Scotia's 4.1% notes due June 1, 2021 traded higher on Wednesday at 105.54 to yield 3.43%, a bond source said. The province (Aa2/A+/DBRS: A) sold the notes on March 2 at 99.765 to yield 4.129%.

Canadian government bonds were mixed over the day after Tuesday's gains tracking U.S. Treasuries. Canada's two-year note yield fell 3 bps to 1.25% on Wednesday. The 10-year note yield rose 2 bps to 2.66%. and the 30-year bond yield rose 1 bp to 3.18%.

The focus will be on Friday with the release of employment figures on both sides of the border.

Quebec sells C$500 million

The Province of Quebec sold C$500 million in a reopening of the 4.25% benchmark notes due Dec. 1, 2021 at 106.264 to yield 3.52% on Wednesday, an informed bond source said.

The notes were sold at a spread of 87.5 bps over the Canadian government benchmark.

The deal went well but was "not a slam dunk" in the volatile market, the source said.

National Bank Financial Inc. was the lead manager. BMO Capital Markets Corp. was a co-manager.

The issue previously was reopened on July 13 in a C$500 million add-on priced at 104.007 to yield 3.779%, or a spread of 84 bps. The total amount now outstanding is C$4 billion.

CHC Helicopter better

A trader said that CHC Helicopter Corp.'s bonds improved, after having plunged nearly 10 points during Tuesday's dealings.

He saw those 9¼% senior secured notes due 2020 having regained 3 or 4 points, after the Vancouver, B.C.-based helicopter services company "clarified some lease issues."

CHC - which provides transportation by chopper to offshore energy-drilling platforms and other sea-based installations, provides airborne search-and-rescue services to civilian authorities and does contract maintenance and overhaul work for outside helicopter owners - said that it has completed agreements with all of its aircraft lessors to successfully reset the financial covenants on the company's operating leases.

Its president and chief executive officer, William Amelio, said that the company is "very pleased with the overall outcome of the negotiations and the support we received from our lessors. We are confident with our ability to operate within the agreed covenant cushion and with our capacity to re-lease aircraft with lease providers as existing leases expire."

On Tuesday, those bonds had lost altitude all the way down to 80 bid, 82 offered, versus their closing level Monday of 89½ bid, 90½ offered.

A trader linked Tuesday's sharp drop to the unexpected announcement of the chief financial officer's imminent departure from the company. CHC announced on Tuesday that its executive vice president and chief financial officer, Rick Davis, will step down from those posts immediately. No explanation was given for his departure, although the announcement said that he will assist with the transition.

Doug Yakola, a senior adviser at McKinsey & Co., will assume Davis' finance responsibilities on an interim basis, while the company looks for a permanent replacement.

Catalyst Paper flat

A trader said that Catalyst Paper Corp.'s 7 3/8% notes due 2014 were pretty much unchanged at 43 bid, 44 offered, while seeing the Richmond, B.C.-based papermaker's 11% senior secured notes due 2016 also little changed at around 74 bid, 76 offered.

"They cracked a lot" on Monday after the company reported poor second-quarter numbers, improved a little from those lows on Tuesday, but still stayed around those lower levels seen on Monday and Tuesday, versus where they had finished last week.

The 11s had fallen as low as 70 bid from levels before the earnings news around 78 bid, while the 7 3/8s had hit a nadir Monday of 40-42 - down some 12 points from the end of last week - although these two had firmed a little from their lows on Tuesday.

On Monday, Catalyst, which runs five mills in British Columbia and one in Arizona, disclosed that during the second quarter ended June 30, it lost C$47.4 million, or 13 cents per share, on C$297.8 million of revenue. That compares favorably to its year-earlier per-share loss of 96 cents, although that earlier period included unusual expenditures, such as the cost of closing down its Elk Falls, B.C., mill and paper recycling division.

Excluding such non-recurring gains and including losses such as the C$5.7 million in costs during the latest quarter related to fires at two of its mills, the company lost C$46.9 million in the quarter, or 12 cents per share, versus its adjusted 11 cents-per-share loss a year ago.

The loss was also wider than the first quarter, when Catalyst lost C$12.9 million, or 3 cents per share, on C$303.6 million of revenue. Excluding special items, the first-quarter loss came to C$23.6 million, or 6 cents per share.

Catalyst blamed its wider sequential loss on reduced production and increased maintenance costs and downtime - particularly at its Powell River and Snowflake mills, each of which suffered a fire.

The company also cited a slackening off of buying by Chinese customers, and the strength of the Canadian dollar, which makes Catalyst's products more expensive to non-Canadian customers.

Paul Deckelman contributed to this review

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