Manitoba sells C$400 million; primary picks up; high-grade bonds firm; Vermilion tightens

By Cristal Cody

Prospect News, March 25 - The Province of Manitoba sold C$400 million in a reopening on Friday, capping a week of heavy bond deals.

The calendar is expected to stay active, with two new deals in the works - from Arrow Lakes Power Corp. and Millar Western Forest Products Ltd., sources said.

"The market's in pretty good shape despite the fact we had a pretty heavy supply calendar," a source said. "Secondary volume except for today has been quite heavy."

The new investment-grade deals that Canada Safeway Ltd., Pembina Pipeline Corp., BMW Canada Inc. and the Royal Bank of Canada sold earlier in the week firmed in the secondary market, according to traders.

In Canada's high-yield market, bond spreads ended Friday unchanged, a source said. While the high-grade market heated up with new deals, the junk bond market over the week has been "quiet because of March break holidays" but "remains very strong."

In the secondary, Vermilion Energy Inc.'s 6.5% notes due 2016 "are trading higher" at 103, the source said. The Calgary, Alta.-based oil and gas producer priced the five-year notes (/BB-/DBRS: BB) on Feb. 3 at par.

Canada's government bonds fell, tracking the sell-off in U.S. Treasuries, after comments by Federal Reserve Bank of Philadelphia president Charles Plosser. Canada's two-year note yield rose 3 basis points to 1.74%, and the 10-year bond yield rose 3 bps to 3.25%.

Treasuries sold off on Friday after the hawkish comments. Plosser suggested in a speech Friday that the Fed should raise rates to stem inflation.

The two-year note yield rose 4 bps to 0.73%. The 10-year note yield rose 4 bps to 3.44%.

"People are usually afraid to bid against Treasuries on Friday, so you usually see a short-term rally," a source said. "Guys don't want to be caught on the wrong side come Monday because they won't be able to get out for 48 hours, so that makes the sell-off today more interesting but very much in tune with what Plosser's comments were."

Manitoba reopens 2041 bonds

In the day's only bond issuance, the Province of Manitoba (Aa1/AA/DBRS: A) sold C$400 million in reopening of its 4.1% benchmark bonds due March 5, 2041 at 94.746 to yield 4.418%, a source said.

The bonds priced at a spread of 73.5 bps over the Government of Canada benchmark.

CIBC World Markets Inc. was the lead manager.

The issue was reopened last on Jan. 21, with an add-on of C$250 million sold at a spread of 79.5 bps. The total outstanding is now C$950 million.

Arrow Lakes Power on tap

In new deals coming up, Arrow Lakes Power is expected to sell C$350 million of senior bonds (A2), a source said Friday.

CIBC World Markets Inc. and Scotia Capital Inc. are lead managers.

Proceeds will be used to repay existing debt, fund reserves and pay a special dividend to the company's owners.

The company operates a hydroelectric generation station near Castlegar, B.C., and is co-owned by Columbia Power Corp. and CBT Arrow Lakes Power Development Corp., a subsidiary of Columbia Basin Trust.

Millar Western roadshow

Also on the calendar, Millar Western Forest Products plans to hold a roadshow for a $200 million offering of senior notes due 2021 on Monday, according to an informed source.

The notes (B3/B-) will be sold under Rule 144A and Regulation S.

Goldman Sachs & Co. is the bookrunner. Co-managers are HSBC Capital (Canada) Inc. and KKR Capital Markets LLC.

Pricing is expected later in the week.

The company plans to use the proceeds and about C$4 million of cash on hand to purchase or redeem all of its outstanding $190 million of 7.75% senior notes due 2013.

Privately held Edmonton, Alta.-based Millar Western produces and markets hardwood and softwood bleached pulp and softwood lumber.

Canada Safeway, Pembina firm

The two new deals sold on Thursday from Canada Safeway and Pembina Pipeline were stronger in trading, a source said.

Canada Safeway, a Calgary, Alta.-based unit of Safeway Inc., priced C$300 million of 3% senior notes due March 31, 2014 at a spread of 89.5 bps over the Government of Canada benchmark.

Safeway operates more than 1,700 stores across the United States and Canada.

Pembina Pipeline (/BBB+/DBRS: BBB) sold C$250 million 4.89% medium-term notes due March 29, 2021 at a spread of 166.3 bps over the Government of Canada benchmark. The Calgary, Alta.-based company is a transportation and service provider to the energy industry in Western Canada.

"Canada Safeway is 4½ better; Pembina Pipeline is about 5 better," the trader said.

RBC stronger

Other deals sold earlier in the week also were stronger.

The Royal Bank of Canada's 3.77% notes due March 30, 2018 (Aaa/AAA/DBRS: AAA), which priced on Wednesday at a spread of 84.2 bps over the government benchmark, traded about 1 bp better on Friday, a trader said.

The financial services company is based in Toronto.

BMW firms

Also in trading, "BMW's are a couple better," the trader said.

BMW Canada (A3) on Wednesday sold two tranches of series B senior notes, including C$400 million of 2.76% notes due April 1, 2014 at a spread of 67 bps over the government benchmark and C$175 million of 3.15% notes due April 1, 2015 at a spread of 90.6 bps.

The Richmond Hill, Ont.-based arm of luxury automaker BMW AG operates 40 BMW automobile retail centers and 19 BMW motorcycle retailers in the country.

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