Variety is spice of record 2017 bond sales

Plain vanilla? No, thanks.

A variety of debt products from hybrids to jumbo “Maple” bonds helped push corporate issuance in the Canadian dollar to a record in 2017, and yield- starved investors are likely to be spoiled for choice again next year.

Led by global giants like Apple Inc. and Walt Disney Co., sales of Maple bonds — notes denominated in Canadian dollars and sold in Canada by foreign companies — rose to a post-financialcrisis high. And national stalwarts such as TransCanada Corp. and Enbridge Inc. started what some see as a trend, selling subordinated notes that could be automatically converted into preferred shares in case of bankruptcy.

Most of the i ssues attracted large numbers of investors who are growing increasingly comfortable investing in both Maple newcomers as well as new types of securities, bankers said. These products helped fill a void in a market traditionally dominated by bank issuance, with the share of financials in Canadian- dollar corporatebond sales falling to 49 per cent, the least since 1999.

“Despite the amount of supply we’ve had, it still feels there’s a lot of demand for credit heading into 2018,” Richard Sibthorpe at BMO Capital Markets, said in an interview. Growing investor pools of capital have helped increase the sizes of deals, he said, and “markets remain very constructive.”

In a year when strong economic conditions and an investor search for yield drove demand for just about every asset class, Canada’s corporate-bond market set a record with about $ 110 billion in sales, passing the previous high from 2013. Credit spreads have gradually tightened throughout the year, pushing a Bloomberg Barclays index up 3.2 this year.

Apple made the biggest splash in the Maple- bond market, selling $ 2.5 billion worth in August in what was Canada’s largest non- financial bond sale on record. That transaction, as well as debut Maple bonds from Disney, McDonald’s, UPS and PepsiCo, helped push this year’s issuance to $ 14.7 billion. That’s the most since 2007 and more than triple the average from 2008 to 2016, according to Bloomberg.

“Some of the big Maple issuers we saw this year, assuming that the pricing lines up, will look to come back to Canada to build out a curve,” said Steve Halliday at TD Securities, which had a hand in 14 out of 16 Maple bond transactions done this year. “We’re out talking to everyone we possibly can about coming to Canada.”

TransCanada and Enbridge both sold hybrid notes of a type that may become more common in the market, according to Royal Bank’s Rob Brown, as any issuer of preferred shares would be a candidate to sell them. “We’re quite encouraged by the positive investor response to hybrid bonds,” said Brown. “We expect others will follow in the coming years, including 2018.”