New names add more diversity to debt markets

For fixed-income investors, the fall of 2017 has already brought a bountiful and diversified harvest with at least two new names, or first-time borrowers.

Last week, Ontario Power Generation, the production arm of the former Ontario Hydro, brought its initial offering (that was rated A low/ triple-B-plus) to the market. It was a success.

Firstly, because of strong demand, the borrower ending up raising $500 million for 10 years, or $200-million more than expected. And that demand meant the issuer — which has filed documentation to raise $2 billion of debt capital over the net 25 months — was able to price the offering at the lower end of the marketing range. The deal closed Monday.

Now Ryerson University is set to tap the debt markets with its first-time offering. The Toronto school, home to 36,500 full-time students, is planning to raise $130 million via the sale of senior unsecured debentures. Moody’s Investors Service has assigned an Aa2 long-term rating and also attached a stable outlook.

Moody’s said the rating “reflects Ryerson’s strong market position, solid levels of liquidity and sound governance and management which makes effective use of multi-year planning.”

It’s understood that the Ryerson issue is being handled by RBC Capital Markets. And plans call for the issuer to borrow the capital for at least 30 years, a period that provides a match for institutional borrowers, including pension funds and insurance companies that have longdated liabilities. (Other university issuers also sell longterm bonds.)

The university plans to use the proceeds to assist with the funding of its downtown campus expansion, including the mixed-use Daphne Cockwell Health Sciences Complex. That building is being named after the mother of Jack Cockwell, for decades the driving force behind the development of Brookfield. In late 2015, Cockwell gave $8 million for the complex, bringing his donations to the university at that time to $28 million. He has been associated with the university for more than 20 years.

Ryerson’s initial deal is coming to market on the back of a very busy period of corporate debt issuance. In the first nine months of this year about $93 billion of such debt has been issued — or about 14-per-cent ahead of levels recorded in the same period of 2016. And issuance in September, 2017, at around $16 billion, is the busiest month since February, 2015.

Other first-time issuers this year include Apple, PepsiCo, UPS and, after an absence of more than 25 years, McDonalds.

While the fixed-income desks are enjoying a record year, the equity desks are struggling, particularly when it comes to initial public offerings: a number of them are trading below issue price.

Maybe the planned $200-million offering by Roots Inc. — with the shares being marketed in the $14- to $16-a-share range — will be provide the tonic.

It’s not just IPOs that are struggling. One week after Trilogy International Partners Inc., one of the four successful special purpose acquisition companies to complete a qualifying transaction, announced a secondary offering of about eight million shares, the deal was pulled. Scotia Capital Inc. and TD Securities Inc. were hired to market the transaction for the company, which provides telecommunication services in New Zealand and Bolivia.

There was no real surprise that the deal was pulled: soon after it was announced the stock fell from $7.27 to an alltime low of $6.05. (Trilogy went public at $10 per unit.) The news that the deal was being cancelled caused the share price to bounce back Monday: it closed at $7.17.

REFLECTS RYERSON’S SOLID LEVELS OF LIQUIDITY AND SOUND GOVERNANCE.