Light deal action forecast; Transpower talk 'expensive'; Viterra rises on possible buyout

By Cristal Cody

Prospect News, March 12 - As spring break opened for the Province of Ontario on Monday, activity in the Canadian bond markets tended on the quiet side and primary action is expected to take a back seat for the rest of the week.

"We expect this week to be very slow," a syndicate source said.

Transpower New Zealand Ltd. unit Transpower Finance Ltd. (A1/AA-/) wrapped a Canadian investor roadshow last week.

"We'll see if they do a deal this week. Given this is Ontario's spring break, we're not too sure if we'll see a deal from them this week, or they might wait until everyone is back next week," a source said.

The company has a maturity due in May and a bond offering is likely to refinance the maturity, according to a source.

One bond source said he thought some initial talk for a possible deal from the New Zealand utility has been "really expensive" though it's "not a bad piece of paper. They're definitely talking in context of comparable terms of Ontario Hydro's plus 50 basis points."

No other details, such as deal size or maturity, have been discussed, the source said.

A mortgage bond offering is slated to price mid-week, according to bond sources.

Canada Housing Trust (Aaa/AAA/DBRS: AAA) is expected to sell C$5 billion to C$6 billion of Canada Mortgage Bonds due June 15, 2017.

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.

Although market sources said Monday was typically slow for the holiday, some activity was seen with an offering of C$200 million of preferred stock from Fairfax Financial Holdings Ltd., and a jump in trading of Viterra Inc.'s stock and bonds on the hint of a potential buyout.

Viterra's bonds traded higher on Monday on the announcement that Glencore International plc, the largest publicly traded commodities supplier, has shown an interest along with other suitors in acquiring the company.

Otherwise, secondary trading slowed.

"Spreads basically opened unchanged and are ending at the same spread, unchanged to 1 basis point tighter," a source said.

The Markit CDX Series 17 North American high-grade index closed Monday at a spread of 95 bps.

Canadian government bonds held onto small gains over the day. The 10-year note yield fell 1 bp to 1.99%. The 30-year bond yield fell 2 bps to 2.57%.

Fairfax sells C$200 million

Fairfax Financial Holdings said on Monday that it sold C$200 million, or 8 million shares, of series K preferred stock at a price of C$25.00 per share.

The preferred shares (DBRS: Pfd-3) yield a 5% annual dividend for the initial five-year period ending March 31, 2017. After that, the dividend rate will be reset every five years at a rate equal to that current five-year Government of Canada bond yield plus 351 bps.

Syndicate details were not immediately available. The deal includes an over-allotment option of 2 million shares.

Proceeds will be used to augment the company's cash position, to increase short-term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations and for general corporate purposes.

Toronto-based Fairfax Financial is a financial services holding company that owns property and casualty insurance and reinsurance and investment management subsidiaries.

Viterra higher

Bonds from Viterra (Ba1/BBB-//DBRS: BBB) traded unchanged to higher on the day on Monday on the potential acquisition news, a source said.

Viterra's 6.406% notes due 2021 rose C$2 on the day to 110 bid, the source said.

The notes traded on Feb. 24 at 108.75 bid and priced on Feb. 10, 2011 at par.

The company's 8½% notes due 2017 (Ba1/BBB-) traded going out flat at 105 bid, 106 offered. The bonds were quoted on Feb. 24 at 107 bid.

"The bonds traded up insignificantly late last week, and that's where they are now," the source said.

Viterra acknowledged in a statement on Friday after a jump in market activity in the company's stock that it has "received expressions of interest from third parties" but said there are no assurances that a transaction will result.

Regina, Sask.-based Viterra provides agricultural ingredients to global food manufacturers.

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