Canadian markets quiet ahead of holiday; high-yield deals forecast; bank paper mixed

By Cristal Cody

Prospect News, June 28 - Canadian bond markets stayed quiet on Thursday following two offerings the previous day from OPB Finance Trust and John Deere Canada Funding Inc.

An offering of asset-backed securities from New York-based CIT Group Inc. (B1/BB-/DBRS: BB) is expected following a roadshow in Canada this week, but no pricing action was seen on Thursday, sources said.

"The investment-grade market has been pretty good with strong deals," a high-yield syndicate source said. "So there's still money to go."

The high-yield market in Canada has been light over the past few months with the last Canadian dollar offering seen in May from Allied Nevada Gold Corp., but that's expected to change next month.

"It has been quite a few months, but there's a couple that are coming and we hope to see in July," the syndicate source said.

Primary activity on Friday is not out of the question, sources said, but it is unlikely considering the Canadian markets close early ahead of a Monday holiday. The U.S. markets also will be closed on Wednesday for holiday, keeping new issuance likely on the backburner until the week of July 9.

"Next week is going to be like toast," an investment-grade syndicate source said. "Things could get launched or announced but they're not going to get done."

Great-West Lifeco Inc. did bring an offering on Thursday in the Canadian preferred market for C$150 million of non-cumulative first preferred shares.

Corporate bonds traded in slightly on the day. The Markit CDX Series 18 North American investment-grade index was flat at a spread of 118 basis points.

Bank and financial paper was mixed. Bank of Nova Scotia's notes traded tighter, while Toronto-Dominion's paper eased in the secondary market.

Government bonds ended higher with yields down 4 bps to 5 bps across the curve. Canada's 10-year note yield fell 5 bps to 1.68%. The 30-year bond yield ended lower at 2.29% from 2.33% on Wednesday.

Great-West Lifeco taps market

In Canadian pricing activity, Great-West Lifeco sold C$150 million of non-cumulative first preferred shares to yield a 5.5% annual dividend on Thursday.

The company sold 6 million shares of the series Q preferred stock (DBRS: Pfd-1) at C$25.00 per share.

The deal includes a greenshoe of C$50 million, or 2 million shares.

BMO Capital Markets Corp., RBC Capital Markets Corp. and Scotia Capital Inc. were lead managers.

The shares are not redeemable prior to Sept. 30, 2017. On or after Sept. 30, 2017, the company may redeem the shares at C$26.00 per share if redeemed prior to Sept. 30, 2018; at C$25.75 per share if redeemed on or after Sept. 30, 2018 but prior to Sept. 30, 2019; at C$25.50 per share if redeemed on or after Sept. 30, 2019 but prior to Sept. 30, 2020; at C$25.25 per share if redeemed on or after Sept. 30, 2020 but prior to Sept. 30, 2021; and at C$25.00 per share if redeemed on or after Sept. 30, 2021.

Proceeds from the sale will be used for general corporate purposes and to augment Lifeco's current liquidity position.

Winnipeg, Man.-based Great-West Lifeco operates life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses.

Scotiabank firms

In the secondary market, Bank of Nova Scotia's 1.85% senior notes due 2015 firmed 4 bps to 71 bps bid on Thursday, a market source said.

The bank sold $1 billion of the notes (Aa1/AA-/) on Jan. 5, 2012 at a spread of 147 bps over Treasuries.

The Canadian bank is based in Halifax, N.S.

TD eases

Toronto-Dominion's 1.625% covered bonds due 2016 eased 3 bps to 45 bps on the day, a source said.

Toronto-Dominion sold $3 billion of the 1.625% five-year bonds on Sept. 7, 2011 at a spread of mid-swaps plus 44 bps or Treasuries plus 73.4 bps.

The bank and financial services company is based in Toronto.

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