Quebec sells C$500 million add-on; provincial secondary sees better buyers; Veresen ahead

By Rebecca Melvin

New York, March 8 - The Province of Quebec priced C$500 million of its 3.5% 10-year bonds in a reopening on Thursday, and the provincial secondary market saw better buying and good flows during the session, market sources said.

The new Quebec bond pricing followed on C$1.4 billion in new bonds in two tranches priced by the Province of Ontario on Wednesday.

"The focus for investors has been on provincials. There has been better buying and the credit spread is 0.5 basis point to 1 bp better across the curve," a provincial bond specialist said Thursday.

Corporate bond action was lighter, however, with most investor focus on the pricing of two tranches of Veresen Inc. debt seen after the market close.

The Veresen gas company planned to price C$250 million of five-year bonds and C$50 million of 10-year bonds, with the potential that those deals would be upsized depending on investor demand.

In general, corporate spreads also tightened by a basis point or two during the session.

There was a selloff in government bonds on a more hawkish outlook for the Canadian economy issued by the Bank of Canada.

As expected, the Bank of Canada, held its 1% overnight lending rate target steady in its announcement early Thursday, but it issued a more upbeat outlook for the Canadian and global economies, which signals a potential rate hike sooner rather than later.

Canada's central bank said the Canadian economic outlook was "marginally improved," uncertainty around the global economy has decreased and there are tentative signs of stabilization in the European debt crisis, the bank said.

Canadian government bonds fell for a second straight day. The two-year note yield rose 4 bps to 1.16% and the Canada's 10-year note yield lifted 4 bps to 1.96%.

"The yield is up 4 to 6 bps across the curve," a bond source said.

Quebec prices C$500 million

The Province of Quebec priced C$500 million 3.5% 10-year bonds in a reopening at 103.584 to yield 3.104% on Thursday, according to a bond source.

The bonds, which mature Dec. 1, 2022, priced at a spread of 101.5 bps over the Government of Canada benchmark.

Bookrunners were National Bank Financial Inc., CIBC World Markets Inc. and Desjardins Securities.

The last reopening of this issue was Feb. 8, and the issue is now C$3 billion outstanding.

Ontario completes funding

With the Province of Ontario's C$1.4 billion in new issuance priced on Wednesday, the province has completed its funding needs for its current fiscal year, which runs through March 31.

With the start of its new year April 1, the province will begin to look at the right timing to complete its C$37 billion in annual budget need.

Ontario priced C$500 million of 3.15% 10-year bonds at 101.477 to yield 2.981%, and it priced C$900 million of 3.5% long bonds to yield 3.55% on Wednesday.

The 10-year bonds priced at a spread of 92.5 bps over the Government of Canada benchmark. And the 30-year bonds priced at a spread of 98.5 bps over the Government of Canada 30-year benchmark.

The long bond came at a half basis point concession, and the 10-year bond came flat to the secondary market, a bond source said.

Veresen to price

Veresen finished a roadshow and was expected to price five- and 10-year issues late Thursday. The five-year tranche was seen pricing at 250 bps plus or minus 5 bps versus the Treasury curve, and the 10-year paper was seen pricing at 350 bps plus or minus 5 bps versus the Treasury curve.

CIBC, TD Securities and Scotia Capital were joint lead managers, with CIBC and TD running the books.

A maximum dollar amount for the "room-to-grow" tranches wasn't given.

"They will take investor orders and grow the book upward," said the market source, who thought the deal would be successful.

"There has definitely been a reversal of the risk-off trade, and I think investors will probably pile into this issue," he said.

Veresen is an infrequent issuer, the source said, and the only downside is that the deal is related to acquisitions and proceeds will not be used to repay debt, he said.

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