Canada credit issuance on pace for record year
• Corporate issuance in the Canadian dollar is on pace for a record year after reaching $ 31.5 billion in the third quarter, the highest for that time of year.
Debut Maple bonds from Apple Inc. and McDonald’s Corp., coupled with offerings from household names Bell Canada Inc. and Enbridge Inc., pushed sales to the highest for any quarter except the first quarter of 2015 when $ 32.7 billion of bonds were sold. Four more transactions this week, i ncluding an i naugural Maple bond from the Walt Disney Co. on Tuesday, will increase the year- to- date tally to at least $89 billion, or $18.4 billion short of the record set in 2013.
Issuers are keen on moving early to lock in lower financing costs. The central bank already increased borrowing costs twice this year. The flurry of bond offerings is getting a warm reception from local investors as volatility in markets remains low, increasing the appeal of corporate bonds.
“The is s ues have not choked the market and the deals have been performing reasonably well, which tells me there’s certainly a lot of cash lying around,” said Andy Kochar at AGF Management Ltd., who helps oversee $ 6 billion. “As long as the deals are being priced appropriately, I don’t see any reason why issuance can’t continue.”
That appears to be the view that’s shared by syndicate desks at banks. Two deals hit the market on Monday, usually a quieter day for issuance in Canada, with AltaGas Ltd. pricing $450 million of securities in a two- tranche offering and Eagle Credit Card Trust $250 million of notes backed by credit- card receivables. Two more were launched Tuesday: a minimum $ 750 million seven- year Maple bond from Disney and a two- tranche offering from Toyota Credit Canada Inc.
A rise in government bond yields triggered by interest- rate increases last quarter has increased the returns for corporate bond investors, and the CBOE Volatility Index has posted its longest streak of quarterly drops since 2011 and may be in for a quiet end to the year.
“That’s the environment in which there’s demand for income and credit product and that can continue into the fourth quarter” said Andrew Torres at Lawrence Park Asset Management. “The Canadian market this quarter demonstrated that you can get the size done.”