Canada Housing Trust plans two-tranche deal; TransAlta widens; Bank of Montreal firms

By Cristal Cody

Prospect News, Nov. 2 - Two Canadian issuers tapped the U.S. investment-grade bond market on Friday following Bank of Montreal's $2 billion two-tranche offering on Thursday.

National Bank of Canada sold $750 million of five-year notes at 75 basis points over Treasuries. The notes priced late in the afternoon, and traders did not see any immediate secondary activity.

TransAlta Corp. brought $400 million of 4.5% 10-year senior notes that widened in the gray market, a source said.

"They priced at 300 [basis points] and initial indication is that it's actually wider by 5 basis points," the source said.

Corporate bonds traded "a touch weaker" on the day.

The Markit CDX Series 18 North American investment-grade index eased 2 bps to a spread of 98 bps.

The Markit CDX Series 18 North American high-yield index fell to 99.48 from 99.75.

Bank of Montreal's two tranches of notes priced on Thursday traded 1 bp to 2 bps better on Friday, according to a bond source.

The quiet primary market in Canada on Friday followed two deals from the provinces of Quebec and Ontario and an offering of 30-year debentures from Windsor Canada Utilities Ltd. on Thursday.

The new bonds from Ontario and Quebec traded flat to about ½ bp weaker along with other provincial bonds on the negative tone in equities, a source said.

"The whole provincial curve is out by half a basis point," the source said. "There are probably some of the Quebec bonds left over that might be pressuring things a little bit."

The week ahead and November in general looks to offer a busier pipeline than October, corporate and provincial sources said.

"A lot of guys pushed off deals to this month, and we're hopeful the tone holds for this month so we get some supply going," one source said.

Heavier provincial and municipal issuance is expected in the first half of November, including a possible 10-year note offering from the Province of New Brunswick.

"We're expecting potentially three provincial deals and three municipal deals over the next couple of weeks," an informed source said.

Also coming up, Canada Housing Trust plans to raise about C$3.5 billion in two tranches of mortgage bonds the week of Nov. 12.

Government bonds rose slightly after Canadian job data came in flat. Canadian employment rose 1.3% in October, Statistics Canada said. The unemployment rate stayed unchanged at 7.4%.

"Bonds in Canada are outperforming slightly," a government bond source said. "Most of it is on our employment report. The headline disappointed but it comes on the back of two decent months, so even though it was weaker than expected, it wasn't a huge miss."

Canada's 10-year note yield ended 2 bps lower at 1.77%. The yield on the 30-year bond fell to 2.36% from 2.38%.

TransAlta sells $400 million

TransAlta on Friday sold $400 million of 4.5% 10-year senior notes to yield Treasuries plus 300 bps, according to an FWP filing with the Securities and Exchange Commission.

The notes (Baa3/BBB-/) were priced at 98.266 to yield 4.719%. There is a make-whole call at Treasuries plus 45 bps until Aug. 15, 2022, with a par call after that date.

The notes feature a change-of-control put at 101%.

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets Inc. and HSBC Securities (USA) Inc.

Co-managers were Mitsubishi UFJ Securities (USA) LLC and RBS Securities Inc.

Proceeds will be used to repay borrowings under an existing credit facility and for general corporate purposes.

TransAlta last tapped the U.S. bond market with a $300 million sale of 6.5% 30-year bonds at 190 bps over Treasuries on March 9, 2010.

The electricity generation company is based in Calgary, Alta.

Bank of Montreal prices

Bank of Montreal sold $2 billion of notes in two parts, according to a filing with the SEC.

The bank priced $1 billion of 0.8% senior notes due 2015 at 99.902 to yield 0.833%, or a spread of 45 bps over Treasuries.

The second part included $1 billion of 2.55% 10-year senior notes, which priced at 99.877 to yield 2.564%, or a spread of 85 bps over Treasuries.

BMO Capital Markets Corp., Morgan Stanley & Co. LLC, Barclays, Goldman Sachs & Co. and J.P. Morgan Securities LLC acted as bookrunners.

The co-managers were Citigroup, HSBC, Bank of America Merrill Lynch, RBS Securities, UBS Securities LLC and Wells Fargo Securities LLC.

Bank of Montreal is a financial services company based in Toronto and Montreal.

Canada Housing Trust on tap

Canada Housing Trust (Aaa/AAA/DBRS: AAA) is expected to raise about C$3.5 billion in two tranches of Canada Mortgage Bonds the week of Nov. 12, a bond source said on Friday.

The trust will reopen its 2.4% bonds due Dec. 15, 2022, which traded on Friday at 55 bps over the government benchmark, in a deal size estimated at C$2 billion to C$2.5 billion.

The trust sold C$2.25 billion of the bonds at 56 bps over the Government of Canada benchmark on Aug. 15.

The second expected tranche is a C$1 billion offering of new floating-rate notes due March 15, 2018 initially talked at three-month CDOR plus 6 bps to 7 bps.

The trust is a unit of Canada Mortgage and Housing Corp., which provides financing, mortgage loan insurance, mortgage-backed securities and housing policy and programs.

National Bank of Canada eyed

In other deal activity, National Bank of Canada detailed its sale of C$175 million of non-cumulative five-year rate reset first preferred shares that priced to yield a 3.8% annual dividend, according to a prospectus supplement.

The bank sold 7 million shares of the series 28 preferreds (Baa1/P-2/DBRS: Pfd-2) at C$25.00 per share.

National Bank Financial Inc. was the lead manager.

The deal includes an over-allotment option of an additional 1 million shares.

The preferreds do not have a fixed maturity date.

On Nov. 15, 2017 and on Nov. 15 every five years thereafter, the bank may redeem all or any part of the series 28 shares.

Shareholders will have the right to convert the preferreds into series 29 non-cumulative floating-rate first preferred shares on Nov. 15, 2017 and on Nov. 15 every five years thereafter.

Proceeds from the offering will be added to the bank's funds and used for general business purposes.

The financial services company is based in Montreal.

Bank of Montreal improves

Bank of Montreal's new U.S. dollar notes traded slightly better on the day in the secondary market, a bond source said.

The bank's 0.8% senior notes due 2015, which priced in a $1 billion offering at a spread of 45 bps plus Treasuries, firmed to 43 bps bid, 40 bps offered.

The tranche of 2.55% senior notes due 2022 came in 1 bp to 84 bps bid, 80 bps offered.

The bank sold $1 billion of the notes at a spread of 85 bps over Treasuries.

Ontario, Quebec ease

The new issues from the Province of Ontario (Aa2/AA-/DBRS: AA) and Province of Quebec (Aa2/A+/DBRS: A) traded about ½ bp weaker on the day, a bond source said.

Ontario sold C$500 million of 2.85% bonds due June 2, 2023 at a spread of 97.5 bps over the Government of Canada benchmark.

"It's been there all day," the source said on Friday.

The Province of Quebec sold C$500 million in a reopening of its 3.5% medium-term notes due Dec. 1, 2022 at a spread of 111.5 bps over the Government of Canada benchmark.

The notes were quoted at 112 bps over the government benchmark in late-afternoon trading.

Aleesia Forni and Andrea Heisinger contributed to this review

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