Bank of Montreal, Valeant Pharmaceuticals, Nova Scotia tap domestic, U.S. bond markets

By Cristal Cody

Prospect News, March 2 - The Canadian debt markets came back to life on Wednesday with bond and preferred securities deals from the Bank of Montreal and an offering from the Province of Nova Scotia.

Across the border, Ontario-based Valeant Pharmaceuticals International Inc. also was said to be in the U.S. market with a $1.5 billion offering of senior notes.

The high-yield market in Canada also is expected to heat back up with potential new deals in the pipeline, according to sources.

Canadian government bonds traded range-bound as crude oil prices rose and U.S. Treasuries fell. Canada's 10-year bond yield rose to 3.34% from 3.29%. The 30-year bond yield was unchanged at 3.75%.

"No one's taking on any risk," said Sheldon Dong, vice president of fixed-income strategy at TD Waterhouse Canada in Toronto.

"The risk markets tend to track the price of oil. The market really does not have any direction now," he said. "Prices have been flat for the past week or so."

The Bank of Canada auctioned C$3.2 billion of 2% notes due 2016 to strong demand on Wednesday.

The Bank of Canada left the overnight 1% rate unchanged on Tuesday. The next policy meeting is in April, though most market economists expect little chance of a rate hike after Tuesday's statement.

"April is off the table, so we've got May and July," Dong said.

In economic data, Statistics Canada said the Industrial Product Price Index rose 0.2% in January, down from a gain of 0.8% in December. The Raw Materials Price Index also showed slower growth with only a 0.3% rise in January.

Treasuries sold off on Wednesday, sending yields up on the long end. The 10-year note yield rose 8 basis points to 3.47%, and the 30-year bond yield closed up at 4.56% from 4.48%.

Bonds turned downward following the release of the Federal Reserve's Beige Book, which reported signs of inflation with higher costs being passed on to consumers.

Bank of Montreal sells MTNs

The Bank of Montreal priced C$1.5 billion in an upsized deal of 3.979% subordinated medium-term notes, series G first tranche, at 100.004 to yield 3.979% on Wednesday, an informed source said.

The notes (Aa3/A/DBRS: AA) priced at a spread of 129 bps over the Government of Canada 2016 benchmark, tighter than guidance of 130 bps. The deal was upsized from C$1 billion.

The notes are a five-year fixed-rate and five-year floating rate issue with a fixed rate of 3.979% until the initial maturity of July 8, 2016 and a floating rate equal to the three-month CDOR plus 109 bps until the final maturity of July 8, 2021.

BMO Capital Markets Corp. was the lead manager.

The proceeds will be used for general corporate purposes.

The Bank of Montreal is under the Toronto-based BMO Financial Group umbrella.

Bank of Montreal preferreds

Bank of Montreal also said that it sold C$250 million of non-cumulative five-year rate reset class B preferred shares, series 25, at C$25.00 per share on Wednesday.

BMO Capital Markets Corp. was the lead manager.

The offering includes an over-allotment option of C$50 million in shares.

The preferreds yield 3.9% a year for the initial period ending Aug. 25, 2016. Thereafter, the dividend rate will reset every five years equal to the five-year Government of Canada benchmark yield plus 115 bps.

The proceeds will be used for general corporate purposes.

Nova Scotia offering

The Province of Nova Scotia (Aa2/A+/DBRS: A) sold C$400 million 4.1% notes due June 1, 2021 at 99.765 to yield 4.129% on Wednesday, a source said.

The notes priced at a spread of 72 bps over the Government of Canada benchmark.

TD Securities Inc. was the lead manager.

Valeant sets price talk

Valeant Pharmaceuticals set the price talk on $1.5 billion two-tranche offering of senior notes.

The notes due 2016 are talked to yield 6.25%, and the tranche of notes due 2022 is talked at a 7.25% yield, a source said.

The deal is offered under Rule 144A.

Goldman Sachs & Co. is the bookrunner. Co-managers are J.P. Morgan Securities LLC and Scotia Capital Inc.

The notes had been expected to price on Wednesday. Additional terms were not available as Prospect News was going to press.

The proceeds will be used to prepay the amounts outstanding under the company's term loan A facility, to finance the redemption of 4% convertible subordinated notes due 2013, to fund the $275 million repurchase of the parent company's common shares from ValueAct Capital Master Fund, LP and for general corporate purposes.

Valeant is a specialty pharmaceutical company based in Mississauga, Ont.

Paul A. Harris contributed to this review

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