Focus moves to financials with TD Bank, Bank of Montreal deals; Kruger readies offering

By Cristal Cody

Prospect News, July 27 - Canadian bond markets focused on the investment-grade financial sector on Wednesday with two bond deals from Toronto-Dominion Bank and the Bank of Montreal.

In the day's largest deal, Toronto-Dominion Bank priced an upsized C$1.75 billion of five-year deposit notes - its first fixed-rate deposit note deal since 2008.

Bank of Montreal came with an offering of C$1.3 billion in two tranches, according to bond sources.

"Obviously, the market is feeling better in terms of getting people to get off their hands and use the cash," one bond source said. "We didn't see big concessions generally."

In other activity, the Bank of Nova Scotia sold $2 billion of 2.15% five-year covered bonds in the Rule 144A and Regulation S market the previous day.

Coming up on Thursday, Kruger Products LP is expected to sell C$150 million of seven-year senior notes (/B/DBRS: BB) with price guidance in the 8% area, an informed bond source said Wednesday.

In the secondary market, the Bank of Nova Scotia's bonds moved out in U.S. trading, a source said.

"Secondary trading has been picking up this week," a bond source said. "Trading is basically centered on the financial space with the BMO and TD deals. Short-dated bank paper appears to be well bid."

In trading, BMO's notes were unchanged, while TD's notes firmed 1 basis point to 2 bps.

"The Canadian market hasn't been busy in terms of new issuance, so there is some backlog and cash on the sidelines," a bond source said. "Equity markets are still not in a good spot, but for the most part, investment-grade bonds are in a good spot in Canada - more bids than offers."

Canadian government bonds rose on the drop in stocks, sending yields down about 2 bps. The yield on the 10-year note fell to 2.87% from 2.9%. The 30-year bond dropped to 3.35% from 3.37%.

TB Bank raises C$1.75 billion

Toronto-Dominion Bank (Aaa/AA-/DBRS: AA) priced an upsized C$1.75 billion of 2.948% deposit notes due Aug. 2, 2016 at par on Wednesday, an informed bond source said.

The notes priced at 83 bps over the Canadian bond curve, in line with guidance. The deal was launched at C$1.5 billion and was upsized with more than 60 investors in the book.

The issue is the bank's first fixed-rate deposit note deal since February 2008, an informed bond source said.

"There was a lot of pent-up demand," the source said. The deal was somewhat in response "to demand from Canadian investors after two separate deals in the U.S. over the last month or so. Interest was relayed after these U.S. dollar transactions."

Toronto-Dominion Bank sold $2.5 billion of two-year floaters on July 20 and $2.5 billion in three tranches of notes on July 7 in U.S. high-grade deals.

TD Securities Inc. was the bookrunner of the new sale.

In secondary trading, the notes "traded in 1 to 2 basis points on the break," the source said.

The bank and financial services company is based in Toronto.

Bank of Montreal prices

The Bank of Montreal (Aa2/A+/DBRS: AA) priced C$1.3 billion in two tranches of deposit notes on Wednesday, according to bond sources.

Bank of Montreal priced C$1 billion of 2.96% notes due Aug. 2, 2016 at a spread of 84 bps over the Canadian bond curve.

The bank priced C$300 million in an add-on to its 4.609% notes due Sept. 20, 2025 at a spread of 148 bps over the Government of Canada benchmark.

BMO Capital Markets Corp. was the bookrunner.

The financial services company is based in Montreal and Toronto.

Bank of Nova Scotia prices

In a sale in the U.S. market, the Bank of Nova Scotia sold $2 billion of 2.15% five-year covered bonds in the Rule 144A and Regulation S market, a source said.

The bonds (Aaa/AAA) were priced at 99.953 to yield 2.16% with a spread of Treasuries plus 69 bps. They are non-callable.

Bookrunners were Bank of America Merrill Lynch, Barclays Capital Inc., Morgan Stanley & Co., Inc., Scotia Capital (USA) Inc. and UBS Securities LLC.

In the secondary market, the notes were seen offered at 84 bps early Wednesday, a trader said.

The financial services company is based in Toronto.

Kruger Products on tap

Kruger Products plans to raise C$150 million in an offering of seven-year senior notes (/B/DBRS: BB) with price guidance in the 8% area, an informed bond source said Wednesday.

The notes are expected to price on Thursday.

Kruger completed a roadshow on Monday for the deal.

Scotia Capital Inc. is the bookrunner.

The notes are due in 2018 and are non-callable for four years. The offering includes a three-year 35% equity clawback and a 101% poison put. The deal also has a Canada call at 50 bps over the Canadian benchmark.

The notes are guaranteed by Kruger Products (USA) Inc. and Grupo Tissue de Mexico.

Proceeds will be used to refinance the company's syndicated credit facility and for general corporate purposes.

Kruger is Canada's leading tissue products producer, with brands that include Cashmere, Purex and Scotties. The company is a subsidiary of Montreal-based pulp and paper producer Kruger Inc.

Andrea Heisinger contributed to this review

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