York Region sells C$250 million 10-year notes; CCS cancels; corporate bond tone 'decent'

By Cristal Cody

Prospect News, June 21 - The Regional Municipality of York came quickly to the market on Tuesday with an offering of C$250 million of 4% 10-year notes, the only deal seen in the Canadian bond markets.

Provincial spreads were flat on the day and secondary flow was light, a source said.

"Spreads were relatively unchanged from where they opened up this morning," the source said.

On the corporate side, Calgary, Alta.-based CCS Corp. pulled its C$675 million offering (Caa2/CCC+), citing adverse market conditions. The waste management services provider to the oil and gas industries had planned to sell dollar-denominated senior notes due 2019 and Canadian dollar-denominated notes due 2018.

Bond market participants said market conditions in Canada are improving.

"Spreads were in a couple basis points on better equity performance and positive expectations for tonight's vote of confidence in Greece," an informed bond source said. "We saw decent secondary trading activity. It felt like there was better market tone than yesterday, at least in Canada."

CCS likely wasn't "finding the interest to do this transaction," an informed source said. "They were tendering for subdebt with senior debt - it just seemed like a no-go from an investor interest."

Another bond source also noted a good tone to the Canadian corporate bond market, though spreads were flat.

"Corporates up here have a decent tone to them but spreads are not tightening," one bond source said. "People are taking advantage of the decent tone to sell a little bit more into the markets. We've had no issuance this week, though, and people are still sitting on their hands waiting to see what happens in Greece tonight and over the next couple of days."

Some corporate deals may price over the week, though many issuers could decide to wait until after the Greece situation is resolved.

"It'll be very, very high-grade; even in the high-yield side, it would be high-grade high-yield if or when we see it," a corporate bond source said of new deal activity. "We've heard of some investment-grade deals that just have never begun to go down the road yet until the markets get settled one way or the other."

In trading, Sino-Forest Corp.'s debt gyrated throughout the session, following another round of bad news for the timber products company.

Paulson & Co., the company's largest shareholder, had divested all of its stake last week. Sino had reported the week before that the firm and its founder, John Paulson, was in full support of the company, despite the allegations of fraud leveled by Muddy Waters Research on June 2.

Government bonds edged up as the market awaits a debt resolution in Greece. The 10-year bond yield fell 1 basis point to 2.97%. The 30-year bond yield ended unchanged at 3.42%.

In economic news, Statistics Canada said retail sales rose 0.3% to C$37.4 billion in April. The agency also said its composite leading index rose 1% in May, its biggest advance of the year, after a 0.9% increase in April.

York sells 10-years

The Regional Municipality of York (Aaa/AAA) priced C$250 million of 4% 10-year notes on Tuesday at 99.869 to yield 4.016%, an informed bond source said.

"We've been anticipating it for awhile and thought it would come at the end of June. The issuer took advantage of the positive market tone," a provincial syndicate source said Tuesday. "All in all, the issue was well received. We ended up selling quite quickly."

The notes due June 30, 2021 priced at a spread of 103 bps over the Canadian government benchmark.

CIBC World Markets Inc. was the lead manager.

The region has about C$600 million remaining in its borrowing program for the year.

The issuer is made up of nine municipalities in Ontario.

Sino-Forest takes a ride

A trader said Sino-Forest saw a "fair amount of trades" during Tuesday trading.

In the 10¼% notes due 2014, he said most of the trades took place within a 43 bid, 45 offered context, though the notes traded as low as 40.

"That looks down 15 points," he said, compared to a 60 bid, 63 offered market on Thursday.

Another trader said the bulk of trades in the 10¼% notes were around 43 bid, 44 offered, "with a couple outliers.

"They're crazy," he said.

The 6¼% notes due 2017 meantime traded at 48, 44, 39 and 371/2, the trader said.

"They were all over the place," he said. "They opened up higher and started to come off."

"It looks like a disaster," said another market source who noted he was not involved with the credit. "I don't think there is much asset coverage."

"[Muddy Waters] hasn't been wrong yet," he said.

In a regulatory filing on Monday, the Paulson fund said it had sold all of its 34.7 million shares in Sino-Forest on June 17. The value of the shares had dropped from around C$815 million to C$111 million.

In addition to losing its largest shareholder - the company had previously said it was in talks with the firm and that it had its full support - Sino received a rating downgrade from Fitch Ratings due to its complex corporate structure, which was holding up funds between subsidiaries.

Sino-Forest notes bounce

Another trader saw Sino-Forest's 10¼% notes due 2014 falling to around 40 on volume of more than $25 million after having traded earlier in a range of 42-47, "so now you've got them Tracing down at 40, so those have come in."

He also saw the company's 6¼% notes due 2017 swooning some 20 points to end at the 37 level.

"The other issues have kind of been bouncing around," he said, "depending on what time of the day it was."

He quoted Sino-Forest's busted 5% convertible notes due 2013 "inside the range" of 37 bid, 39 offered, while its 9 1/8% notes - supposed to mature less than 60 days from now, on Aug. 17 - had nosedived to a 72 bid in morning trading, down around 20 points from its prior levels in the low 90s.

"You had the Paulson news, with him selling his stake," the trader elaborated, then asking rhetorically whether the Sino-Forest troubles might spell bad news for other Chinese companies, such as a lot of property and real estate development companies whose bonds trade in the high-yield space.

"Is this thing a donut? And does this spill over to other China companies? How reliable and dependable are the kind of vetting or due diligence that the Chinese go through?" he said.

He theorized, "if there wasn't [at least some] truth to all of these rumors, would these things [stock prices] continue their slide down to near zero?"

An additional trader said that the company's bonds and shares "absolutely" were getting killed over the past two days between new allegations, which arouse from a weekend newspaper report and now the news about savvy stock-picker Paulson's pullout.

At another desk, a market source estimated that some $22 million of the 101/4s had changed hands, with the bonds falling into the 40s from their levels late last week of around 63 bid. He saw them going home at around the 44 mark, although throwing out smallish trades and only sticking to round-lot transactions, they finished around 40.

He also saw the 61/4s - which had traded around 50 last week - bounce wildly around on Monday in a 15-point spread between 43 and 57 after a major Canadian newspaper, the Globe and Mail, claimed in a weekend story that "inconsistencies" have been found in the valuation of Sino-Forest's holdings in China's Yunnan province.

The newspaper's findings which appear to confirm at least some of the allegations of fishy book-keeping leveled at the company by short-seller Carson Block's investment and research firm, Muddy Waters LLC, in a scathing, strongly worded report that came out on June 2. The company has vehemently denied the allegations.

Then on Tuesday, the source said, those 61/4s plummeted down to the mid 30s on trading of more than $26 million, although the last large transaction of the day lifted the level back to around 43.

Sino-Forest's battered Toronto Stock Exchange-traded shares nosedived by as much as 52.7% from Monday's closing levels during intra-day trading on Tuesday after the news of Paulson dumping the shares hit the tape. While they came off those initial lows, they still ended down 74 cents, or 27.11%, at C$1.99, on volume of more than 60 million shares, nearly 12 times the norm.

The shares have lost some 89% of their value since June 1, the day before the Muddy Waters report came out, when they had traded at C$18.21.

Catalyst bonds rise

A trader said that the news that Catalyst Paper Corp. had hired UBS to help it explore strategic alternatives pushed the Richmond, B.C.-based paper manufacturer's bonds "up a couple of points."

He saw its 7 3/8% notes due 2014 at 60 bid, 62 offered from prior levels around 58 bid, while its 11% notes due 2016 rose to 88 bid, 90 offered.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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