Telecom spreads widen on Bell Canada acquisition, spectrum auction; Scotiabank tightens

By Cristal Cody

Prospect News, March 16 - Canadian bond markets stayed quiet with activity mainly seen in the telecom sector on news this week of the government's spectrum auction followed on Friday by Bell Canada's announcement that it will acquire Astral Media Inc. for C$3.4 billion.

Parent company BCE Inc. said it will assume C$380 million of Astral's debt as part of the deal, which is expected to close before the end of the year.

"It definitely has a lot of implications for financing in the coming months," a bond source said. "There's some activity in the secondary market. Spreads are slightly weaker on the back of the news."

Bell Canada's credit remains strong with Moody's Investors Service and DBRS confirming that the Canadian telecommunications company's credit ratings were unaffected by the transaction. Bell Canada is rated Baa1 from Moody's and BBB by DBRS.

Bell Canada's bonds traded as much as 5 basis points to 10 bps wider early on Friday.

"However spreads have stabilized as we approached the end of the session, and it's about 5 basis points wider," a source said. "Other telco spreads are also widening by a couple basis points. Supply is not coming in the near future, so spreads are kind of stabilizing."

Bell Canada's bonds due 2021 traded about 4 bps weaker over the week. No major activity was seen in Rogers Communications Inc.'s bonds.

On Wednesday, the Canadian government said it will auction wireless spectrum in 2013 to expand the country's mobile network.

"Outside of that space, it's really been a quiet last day of the Ontario public school break," a source said.

A March break holiday continues for some provinces and private schools in Canada in the upcoming week, but deal activity should pick up, according to sources.

The Markit CDX Series 17 North American investment-grade index ended Friday 1 bp better at a spread of 89 bps.

In the secondary market, bank and financial paper traded tighter. No activity was seen in Bank of Nova Scotia's $2.75 billion of covered bonds (Aaa/AAA/) sold in the U.S. market on Thursday, but the company's notes sold in January have come in since pricing.

Government bonds stayed lower again on Friday. The 10-year note yield rose 2 bps to 2.24%. The 30-year bond yield rose to 2.76% from 2.74%.

Rogers paper inactive

Rogers Communications' 6.8% notes due 2018 traded unchanged on the day with the last trade seen on Wednesday at 145 bps bid, 150 bps offered, a trader said. The notes (Baa3/BBB-) were sold in 2008 at a spread of 278 bps over Treasuries.

The wireless and cable television company is based in Toronto.

Scotiabank stronger

Bank of Nova Scotia's older 2.55% senior notes due 2017 traded 5 bps tighter at 85 bps on Friday and about half of the issue price from January, a source said.

Scotiabank sold $1.25 billion of the notes (Aa1/AA-/) on Jan. 5 at a spread of 172 bps over Treasuries.

The Canadian bank is based in Halifax, N.S.

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