BMO taps U.S. market; Canadian deals forecast; BMO, TransCanada tighten, Valeant flat

By Cristal Cody

Prospect News, Sept. 4 - As forecast the previous week on the heels of stronger bank earnings, Bank of Montreal brought a deal following the long weekend but in the U.S. market on Tuesday, according to bond sources.

Bank of Montreal sold $1.7 billion of senior medium-term notes (Aa2/A+/AA-) in two tranches.

"Obviously, with BMO there and even Royal Bank [of Canada] talking about doing a covered bond there, it's taking away a little bit of steam for the C-dollar stream," one Canadian bond source said. "There are some maturities that have to be filled; it's something we're going to continue to watch for but I would be surprised if BMO or Royal came back to Canada after going down there."

In Canada, market activity stayed fairly quiet.

"Really nothing much - it's all south of the border," a source said.

The Canadian deal pipeline remains light, but September is expected to be busier, according to bond sources.

Melbourne-based Telstra Corp. (A2/A/A) wrapped its non-deal roadshow in Toronto on Friday following previous stops in the U.S. market, with investors' responses likely under review, a source said on Tuesday.

Investors also are returning to work after summer holidays, and the week likely will see some bond deals, a source said.

"We're still watching the overseas markets just for general direction, and other than that, there's nothing stopping people coming to market," the source said. "Investors are now back to work. Some needed a day to clean up a backlog of material and there was a little bit of index extension that was going on, but that was more people buying longer-dated Canadas."

In other market activity, Enbridge Inc. announced on Tuesday that it sold an upsized C$400 million of cumulative redeemable preference shares that yield a 4% annual dividend for the initial seven-year term.

In the secondary market, Bank of Montreal's senior notes traded going out 6 bps better, a trader said.

Valeant Pharmaceuticals International Inc.'s bonds stayed flat in trading on Tuesday following the company's announcement it will acquire Medicis Pharmaceutical Corp. for $44 a share in cash in a deal valued at $2.6 billion.

Valeant said it plans to sell new bonds to finance the deal.

Also in trading, TransCanada Pipelines Ltd.'s 10-year notes are stronger by nearly 20 basis points since the issue priced in late July, a trader said on Tuesday.

On the flip side, Teck Resources Ltd.'s bonds (Baa2/BBB/DBRS: BBB) sold on July 30 are about 15 bps wider in the secondary market, according to a trader.

No immediate activity was seen on the day in MEG Energy Corp.'s 6.375% senior notes due 2023 that were priced at par on July 16.

The Markit CDX Series 18 North American investment-grade index firmed 1 bp to a spread of 101 bps.

The Markit CDX Series 18 North American high-yield index edged up to 98.37 from 98.29.

Canadian government bonds closed higher with yields down across the curve. The 10-year note yield fell 3 bps to 1.74%. Canada's 30-year bond yield ended at 2.31% from 2.34% on Friday.

The Bank of Canada will release its policy rate on Wednesday. No changes are forecast.

Bank of Montreal prices

Bank of Montreal sold $1.7 billion of senior medium-term notes (Aa2/A+/AA-) in a reallocated two tranches on Tuesday, a market source said.

The financial services company added a $700 million tranche of three-year floating-rate notes priced at par to yield Libor plus 47 bps.

There was also a $1 billion tranche of 1.4% five-year notes sold at 99.846 to yield 1.432% with a spread of 82 bps over Treasuries.

Both tranches are non-callable.

Bookrunners were BMO Capital Markets Corp., Morgan Stanley & Co. LLC, Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Wells Fargo Securities LLC.

Proceeds will be contributed to the bank's general funds and used for general corporate purposes.

Bank of Montreal's notes due 2017 tightened to 76 bps bid, 75 bps offered going out on the day, a trader said.

The financial services company, based in Toronto and Montreal, was last in the U.S. bond market with a $1.5 billion deal of 2.5% five-year notes priced at 170 bps over Treasuries on Jan. 6, 2012.

Enbridge upsizes

Enbridge tapped the Canadian markets on Tuesday with an upsized C$400 million offering of cumulative redeemable preference shares that yield a 4% annual dividend for the initial seven-year period.

The company sold 16 million shares of the series P preferred stock (Baa3/BBB/DBRS: Pfd-2) at C$25.00 per share in a deal upsized from C$250 million, or 10 million shares.

TD Securities Inc., CIBC World Markets Inc., RBC Capital Markets Corp. and Scotia Capital Inc. were the lead managers.

The dividend rate will reset on March 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 250 bps.

The preferreds are redeemable by Enbridge, at its option, on March 1, 2019 and on March 1 of every fifth year thereafter.

Proceeds from the sale will be used to partially fund capital projects, to reduce existing debt and for other general corporate purposes.

Enbridge is a Calgary, Alta.-based oil and gas distributor and transportation company.

Valeant flat

Valeant Pharmaceuticals' bonds stayed flat in secondary trading on Tuesday following the company's announcement of its deal to buy Medicis Pharmaceutical.

"Looks like all unchanged," a trader said.

Valeant's 7.25% senior notes due July 15, 2022 (Ba3/BB-/) traded unchanged on the day at 103.75 bid, 104.75 offered, a trader said.

Valeant sold $550 million of the notes on March 3, 2011 at 98.125.

Valeant chairman and chief executive officer J. Michael Pearson said on Tuesday in an investor conference call that the acquisition will be financed "with a combination of term loans and bonds."

The deal is expected to close in the first half of 2013.

The specialty pharmaceutical company is based in Mississauga, Ont.

TransCanada Pipelines gains

TransCanada Pipelines' 2.5% senior notes due 2022 remain stronger at 78 bps bid, 73 bps offered in secondary trading on Tuesday, according to a trader.

The company sold $1 billion of the 10-year senior notes (A3/A-/DBRS: A) on July 30 to yield Treasuries plus 100 bps.

TransCanada is a Calgary, Alta.-based natural gas and oil pipeline.

Teck weaker

Teck's 3.75% notes due 2023 traded wider at 250 bps bid, 240 bps offered on Tuesday, a trader said.

The company sold $750 million of the notes on July 30 at a spread of 235 bps over Treasuries.

The tranche of 5.4% bonds due 2043 that also priced on July 30 traded weaker at 300 bps bid, 290 bps offered. Teck sold $500 million of the bonds at a spread of Treasuries plus 285 bps.

Also in trading, the company's 5.2% bonds due 2042 have moved out in trading to 295 bps bid, 280 bps offered. The issue priced in a $500 million offering on Feb. 16, 2012 at a spread of 210 bps over Treasuries.

The mining company is based in Vancouver, B.C.

Andrea Heisinger contributed to this review

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