Markets reignite: Desjardins brings C$800 million; Laurentian, Fairfax price; provincials busy

By Rebecca Melvin

New York, New York, Oct. 11 - The Canadian bond markets burst into action on Thursday as tone improved and interest rates and spreads became more appealing to issuers. Altogether there were three new corporate bonds in the market and three provincial new issues, while Government of Canada bonds remained essentially flat, market sources said.

The windfall of new issues followed quiet markets Tuesday and Wednesday after the Canadian Thanksgiving holiday was observed Monday.

Caisse Centrale Desjardins sold C$800 million of four-year deposit notes due October 2016 at par to yield 2.281%, an informed source said.

The Desjardins issue priced at a 95.7 bps spread over the Government of Canada benchmark.

Laurentian Bank of Canada priced C$100 million of class A preferred shares, or 4 million shares at C$25 per share, in a bought deal, to yield 4% with a reset after five years to a floating rate.

Fairfax Financial Holdings Ltd. priced C$200 million of 5.84% senior unsecured notes due 2022 late Wednesday at a price of 99.963, according to an informed source.

In the aftermarket Thursday, the spread on the Fairfax deal tightened by about 8 basis points, and the spread on the Desjardins deal tightened by 2 bps, a trading source said.

"Generically, it was better buying," the trading source said. "It was good to see a couple of deals, as there has not been a lot of supply, and investors have become very nimble in the secondary market, which was stronger."

The Laurentian Bank preferred deal was likely a refinancing, and possibly a harbinger of an upcoming debt deal, the source said.

"I would think they would want to do a subordinated debt deal before too long," the source said.

Outside the corporate bond market, the provincial market also fanned into flame.

Following tax actions from the Province of Quebec's new finance minister, the tone improved enough for the province to come in and raise C$500 million in a reopening of its 4.25% medium-term notes due Dec. 1, 2043.

The Province of Nova Scotia sold C$342.6 million in a reopening of its 3.5% 50-year bonds at 101.086 to yield 3.454% on Thursday. And the Regional Municipality of York sold C$150 million of 4% 20-year bonds at 102.646 to yield 3.807%.

"There were three issues; it was a busy day," a provincial bond specialist said.

Overall, however, provincial debt spreads widened by about 1 bp from Wednesday and were about 0.5 bp wider from where they opened on Thursday, the specialist said.

Government bonds ended little changed.

Initially, they were better offered after initial claims came in better than expected, but they ended flat, a source said.

Canada's 10-year note yield closed 1 bp lower at 1.8%. The 30-year yield ended unchanged at 2.40%.

Desjardins, Fairfax gain

Desjardins' C$800 million of four-year deposit notes came in 2 bps after the issue priced at a 95.7 bps spread over the Government of Canada benchmark due in September 2016.

The issue was sold via bookrunners including Caisse Centrale Desjardins, RBC Capital Markets Corp., TD Securities Inc., and CIBC World Markets Inc.

Centrale Desjardins is a cooperative and the treasurer for Desjardins Group, a Quebec-based financial services company.

Fairfax's C$200 million of 5.84% senior unsecured notes came in 8 bps from the 403.9 bps spread at which they priced.

The deal was sold via a syndicate of dealers led by BMO Capital Markets, CIBC World Markets, RBC Capital Markets, Scotiabank Global Banking and Markets and Bank of America Merrill Lynch.

Proceeds will be used to augment the company's cash position, increase short-term investments and marketable securities held at the holding company level, pay down debt and other corporate obligations, and for general corporate purposes.

The offering was made by way of a short-form prospectus.

Toronto-based Fairfax Financial is a financial services holding company that owns property and casualty insurance and reinsurance and investment management subsidiaries.

Laurentian Bank's preferred deal was seen as a refinancing of a C$100 million outstanding preferred that is callable Nov. 13.

The yield on the outstanding Laurentian deal is 6%, so they are saving some cash with the new preferred at 4%.

The resets were seen as a similar to other deals of this type.

Provincials busy

First Nova Scotia came in the morning with its reopening of its 50-year benchmark. There wasn't much of an aftermarket in the 50-year bonds, which are typically buy-and-hold among accounts.

More than half the Nova Scotia deal was bought by a domestic pension plan.

Better rates, risk and tone lured Nova Scotia into the market, a provincial bond specialist said.

Then Quebec did its 30-year benchmark reopening, and finally a municipal deal by York came in.

All the provincial deals are for funding of general obligations.

"It was hard to bring a deal before, but tone was better and we were expecting some issuance," the bond specialist said.

Quebec spreads were helped by new tax measures announced late Wednesday by the province's new finance minister.

"A new tax bracket and other fiscal measures will definitely help it meet its deficit targets and that's better for spreads," the specialist said of Quebec.

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