Canadian companies are issuing new bonds at a record pace

Canadian companies are on track to sell a record volume of bonds in their own currency this year, taking advantage of low rates to refinance and fund post-pandemic investments.

Almost $78 billion (US$52.5 billion) has been issued already this year, more than 70 per cent of the record $111 billion sold in all of 2020, according to data compiled by Bloomberg. Bankers expect a new high, despite a slower pace through year-end as borrowers shift from stockpiling liquidity to rightsizing balance sheets and protecting ratings.

“We are on a good path to exceeding the record highs that we’ve seen in the Canadian market,” said Rob Brown, co-head of Canadian debt capital markets at Royal Bank of Canada, one of the biggest underwriters of the debt.

The second half of the year is typically less busy than the first in Canadian-dollar corporate issuance, partly due to holidays. This year’s slowdown is expected to be aggravated by fatigue stemming from the brisk start to 2021 and the fact that most market participants are still working from home.

“Our pipeline is thinner than it was,” said Brown in a video interview. Refinancing needs may be smaller, but high-yield and ESG financing should continue gaining traction in the second half, while funding for investments like 5G spectrum for telecoms may boost volumes, he said.

“Funding costs are still very attractive and, to the extent we do see a little bit of a slowdown that will help the technical picture, will support credit spreads, and that will likely encourage issuers to look to access to market,” said Brown.

The yield on the Bloomberg Barclays Canada Corporate Bond index has been in a 2.04 per cent to 2.18 per cent range since mid-March, with an increase in government yields offset by tighter spreads.

“Credit spreads will likely grind sideways throughout the summer with a chance of spreads widening towards the end of the year,” said Sue McNamara, senior vice president at Beutel Goodman & Co., a Canadian investment manager, said in an emailed response to questions.

McNamara is watching how companies use the strong free cash flow they’re accumulating. “Will they show discipline and de-lever, or will they use it for share buybacks and dividend increases,” said McNamara, adding that increased merger and acquisition activity warrants caution.

There’s at least $197 billion of pending or completed M&A deals involving Canadian companies using cash or financing, up from $167 billion last year, according to data compiled by Bloomberg. Among the largest deals, Rogers Communications Inc. agreed to buy smaller rival Shaw Communications, and Brookfield Infrastructure Partners LP made a hostile bid for Inter Pipeline Ltd. that could derail a friendly all-stock offer from Pembina Pipeline Corp.

CORPORATE BONDS/STRUCTURED FINANCE

• PRICED: Bank of Montreal $1b 10NC5 +99
• PRICED: NuVista Energy $230m 5NC2 +716
• BOOKSTATS: Toyota Credit $600m 2-Part Deal ~4.7x; ~3.5x Covered
• PRICED: Bank of Nova Scotia $1.15b Debt Offering in 2 Parts
• PRICED: CIBC $1.5b Debt Offering in 2 Parts
• PRICED: Summit Industrial $225m 7Y +131

PROVINCIAL/AGENCY/SSA BONDS

• Alberta Adds $408m to 2024 Bonds +19
• Alberta Sells $600M of 2031 Bonds +69
• Quebec Sells $500M of Its 2053 Bonds +74
• Ontario Sells $750 Million of 2031 Bonds +64.5

FOREIGN BONDS

• BRITISH COLUMBIA PROV OF USD2.5 billion 5Y
• BANK OF NOVA SCOTIA CHF260 million
• STRATHCONA RESOURCES LTD USD500 million 5Y
• EXPORT DEVELOPMENT CANADA GBP100m 3Y

OTHER CREDIT EVENTS

• Canadian Telecom Bonds Weaken On 5G Auction Report
• Brookfield’s Bid for Inter Pipeline Shifts Focus to Pembina
• RBC’s Downgrade Echoes Tough Operating Environment: Credit React
• Great-West Lifeco to Expand Irish Presence With Ark Life Deal
• Great-West Lifeco Inc. reached an agreement to acquire ClaimSecure
• Shell Proposes Large Carbon Capture Project in Alberta
• CPP Investments Invests US$800 Million in Flipkart

ECO CA

• 07/19 Bloomberg Nanos Confidence
• 07/20 Teranet/National Bank HP Index
• 07/20 Teranet/National Bank HPI MoM
• 07/20 Teranet/National Bank HPI YoY
• 07/23 Retail Sales Ex Auto MoM
• 07/23 Retail Sales MoM

--With assistance from Daniel Covello.