CHUM launches C$1.37 billion bonds for Tuesday pricing; provincial, corporate markets calm

By Rebecca Melvin

New York, June 6 - Centre Hospitalier de l'Universite de Montreal (CHUM)'s widely anticipated bond issue launched Monday with a C$1.37 billion issue size and spread talked at 315 basis points over the Canadian government benchmark. Pricing of the 37-year bonds was expected Tuesday.

Separately, Canaccord Financial Inc. priced $100 million of cumulative five-year, rate-reset first preferred series A shares in a bought deal, which will yield 5.5% for the first five years and then reset every five years to a rate equal to the five-year Bank of Canada bond plus 321 bps.

Elsewhere, corporate and provincial new issue markets were quiet and pricing and spreads in the secondary market were quiet and little changed to slightly weaker.

Canadian government bonds ended mixed. The government's two-year bond yield was down at 1.410% on Monday from 1.429% on Friday, while the 10-year bond yield rose to 2.993% on Monday from 2.979% on Friday.

"It's very quiet," an informed bond source said, noting the 10-year yield hovering around 3%.

Investors are "essentially pricing in the economy turning down globally," the source said.

In the face of general weakness, "the market is trying to extract concessions out of Treasury options in the U.S.," he said.

In the United States, $66 billion of new supply is expected this week.

"Bond yields are at six-month lows," the source said. "It's already priced in for a growth slowdown, and with this week light on economic data, and with stock markets weak, the focus is on supply," he said.

And the supply is in the United States; there's nothing in Canada, he said.

Provincials calm after flurry

Provincial spreads were unchanged to 0.5 bp wider on the 10-year paper and long bonds.

"They were pretty well not much changed today, on balance," a bond market player, focused on the provincial market, said.

"We're consolidating after last week," he said, noting that while the five-year sector was pretty steady, the market overall was wider by about 4 bps last week.

"The market digested a fair bit of issuance in May, and we have had some spread widening to get that supply digested," the source said.

Buyers have stepped in gradually, picking away at the wider spread, he said.

In the meantime, he doesn't anticipate a lot of other issuance imminently.

Last week there was a flurry of provincial deals including Manitoba's 10-year deal, and long-bond deals from Ontario and British Columbia, as well as a municipal bond from Toronto. The week before, Nova Scotia had issued a long bond.

Other than Canada Mortgage bonds expected to price $6 billion to $6.25 billion next week, there is little on the horizon at this time, he said.

Of course, 'folks like Ontario, which has already been looking at the market and did longs last week, may step in opportunistically," the provincial bond source said.

But overall, most of what had been expected to come has already come.

The focus now is on the Canadian long bond auction on Wednesday and Montreal medical center's $1.37 billion on Tuesday.

Montreal medical center eyed

Montreal's medical center bond issue has been pending following several roadshows launched at talk of 315 basis points over the Canadian government benchmark.

The deal, for which the book closed shortly after launch Monday afternoon, was well oversubscribed, RBC's head of syndication, Richard Van Nest, told Prospect News.

The medical center, referred to by its French acronym CHUM, is one of two major hospital networks in Montreal.

The bond is rated BBB by Moody's and BBB+ by DBRS.

The deal size will vary marginally depending on the final coupon and will be seen in the secondary market on the break, Van Nest said.

The Aa2 rating is the same as that of the Quebec government.

In its analysis, Moody's noted CHUM's importance as a leading health care institution in Quebec.

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