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Scotia Says Corporate Issuance May Surpass 2010: Canada Credit

September 28, 2011

Sept. 28 (Bloomberg) -- Corporate debt sales in Canada this year may surpass the C$78.8 billion ($77.3 billion) raised in 2010 even after issuance this quarter fell to its slowest pace in two years, said Greg Woynarski, Scotia Capital’s global head of debt-capital markets.

Canadian companies raised C$61.3 billion in 153 bond sales this year, ahead of the C$55.5 billion pace in the year-ago period, according to Bloomberg data. Just C$12.4 billion was issued in the current quarter, as higher relative borrowing costs deterred companies concerned that the global economy is losing steam.

“With the extreme volatility that we’ve had in the market, there have been a lot of issuers from provincials all the way down to high yield, that have either delayed things or are waiting for stability,” Woynarski said in a Sept. 26 interview in Toronto. “The pipeline is continuing to roll and has been continuing to build nicely.”

Three companies sold bonds yesterday, including American Express Canada, after stocks and commodities rallied on optimism European leaders will tame the region’s debt crisis. Hydro- Quebec and Manitoba Telecom Services Inc. also sold debt.

New issuance in the fourth quarter will come mostly from so-called public-private infrastructure deals, Woynarski said. The unit of Bank of Nova Scotia led a C$543 million sale in July for Hospital Infrastructure Partners.

“There’s going to definitely be use of public-private placement because it’s proven to be a successful model,” Woynarski said. “You’re going to see a lot more small deals because there are only so many major hospitals one can build, but you’re going to see roads, bridges, court houses.”

More Maple Bonds

RBC Capital Markets said last month that sales of so-called PPP bonds are on pace for a record C$4 billion this year as the government replaces aging roads and bridges.

Maple Bonds, which are Canadian-dollar debt sold by foreign companies or governments, may be a “wild card” in additional issuance because of relative volatility in other countries, Woynarski said.

“When local markets continue to sell off and close or become highly volatile, people look to Canada,” he said.

Scotia Capital ranks second in Maple issuance this year behind RBC Capital Markets, with five issues valued at C$545.8 million, including deals for Korea Gas Corp. and Goldman Sachs Group Inc.

Debt Auction

Elsewhere in Canada’s credit markets, American Express Canada increased by C$200 million its 3.6 percent bonds due in June 2016 to C$600 million. The securities were priced to yield 200.1 basis points more than comparable benchmarks.

Hydro-Quebec, the Canadian province’s state-owned utility, increased by C$500 million its 5 percent bonds due in February 2050. The securities were priced 104.5 basis points more than the benchmarks. Manitoba Telecom sold C$200 million of 4.59 percent bonds due in October 2018. The debt priced to yield 275 basis points over the curve.

The Bank of Canada will give further information tomorrow about its Oct. 5 auction of 10-year bonds. The previous auction of 10-year bonds, on July 27, drew an average yield of 2.994 percent and a bid-to-cover ratio of 2.46 times, versus a five- auction average of 2.37 times. The announcement will be available on the central bank’s Web site at 3:30 pm Ottawa time.

Canada’s Parliamentary Budget office said yesterday that federal government spending through the first three months of the fiscal year that began in April, has been in line with budget forecasts.

Economic Picture

Canadian Prime Minister Stephen Harper said he noted that the world economic picture isn’t so positive during his trip last week to the United States, and told reporters he would compare notes on the economy during a meeting with Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty.

Harper made the remarks at the start of a meeting of the three policy makers, according to an account distributed to media in a pool report.

The extra yield investors demand to own the debt of investment-grade companies rather than the federal government widened 1 basis point yesterday to 180 basis points, from 179 on Sept. 26, according to Bank of America Merrill Lynch’s Canadian Corporate Index. A basis point is 0.01 percentage point. Spreads for the firm’s global index of corporate bonds increased 2 basis points to 264 basis points as of Sept. 26.

Average Canadian corporate yields decreased to 3.52 percent yesterday, from 3.57 percent on Aug. 31 and from 3.81 percent on June 30.

Canadian corporate bonds have returned 3 percent this quarter and 5.6 percent since the start of the year. The global market for company bonds has gained 3.4 percent in 2011, Bank of America Merrill Lynch indexes show.

Canadian Dollar

The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0232 per U.S. dollar at 8:52 a.m. in Toronto, compared with C$1.0193 yesterday. One Canadian dollar buys 97.73 U.S. cents.

Government bonds declined for a fourth day, pushing yields on Canada’s benchmark 10-year notes up one basis point, or 0.01 percentage point, to 2.20 percent. The yield dropped to a record low 1.99 percent on Sept. 23.

Canada’s federal debt securities have returned 5.3 percent this quarter, including reinvested interest, and 7.2 percent this year, according to a Bank of America Merrill Lynch index.

Scotia Capital is on pace to be the lead underwriter of corporate debt in the third quarter, bolstered by two deals for its parent company Bank of Nova Scotia.

Scotia Capital

The Toronto-based firm underwrote eight issues valued at C$3.62 billion in the period, according to Bloomberg data. That includes two issues for Bank of Nova Scotia valued at C$2.5 billion, as well as the C$300 million sale of 4.39 bonds maturing in September 2041 sold by Hydro One Inc. last week.

Scotia Capital has made changes this year to its debt team, including the transfer of Gregory Greer from London to run Canadian debt capital markets, and hiring former RBC Capital banker Larry Bates in January for its government finance and financial institutions group.

Excluding self-led deals, RBC Capital Markets is the top arranger for corporate bond sales on the quarter. RBC, a unit of Canada’s biggest bank, also leads year to date issuance.

RBC expects the pace of issuance will be “moderate” compared with the first half of the year, said Chris Seip, the bank’s head of debt capital markets.

RBC Capital

“We would suggest that Q4 will probably be more tempered in terms of supply into the market,” Seip said yesterday in a telephone interview. “It doesn’t mean there’s not a receptive market; it just means that the maturity schedule and the heightened geopolitical issues in the market will temper issuance in the near-term.”

Seip said he expects investor sentiment “to remain dominated by headline risk and volatility,” while appetite for yield is “healthy” within the context of the current low-rate environment.

--Editors: David Scanlan, Dave Liedtka

To contact the reporter on this story: Sean B. Pasternak in Toronto at; Chris Fournier in Halifax, Nova Scotia at

To contact the editors responsible for this story: David Scanlan at; Dave Liedtka at

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