Canadian junk bond sales head for record

TORONTO • Canada’s junk bond market is on track for record issuance this year as an increase in crude oil prices has boosted confidence among local energy companies and investors.

New high-yield issuance in the Canadian dollar accelerated in recent weeks, taking the year-to-date total to $3 billion, a record for this time of year, according to Bloomberg. National Bank Financial and BMO Capital Markets, the top two of the deals’ arrangers in both volume and number of deals, are hopeful they can bring more transactions to the market in coming months.

“There’s more comfort around the oil sector,” said Sean St. John at National Bank Financial.

“With oil over $50 per barrel, people have confidence that companies are here for the long run at these kind of levels, that they are sustainable and profitable.”

Among the most notable names that came to the market in recent weeks were CES Energy Solutions Corp., which revived a deal that originally didn’t pan out in March, and Gibson Energy Inc., which reopened its 2024 bonds.

In a rare high-yield offering by a company outside the energy sector, Yellow Pages Ltd. sold $315 million of 5-year bonds.

St. John said National is in talks with both energy and non-energy companies that are “actively watching and asking questions” about potential high-yield bond sales.

There could be even more to come in the coming years, according to Kevin Lockhart at BMO. He said it’s possible for the market to grow at a 20-per-cent to 25-per-cent pace in 2018 and 2019.

“Deals beget deals and success begets success,” Lockhart said. with respect to any of its decisions, and we hope to see output that will be able to consistently outperform human decision-making.”

That said, he doesn’t expect investors to flock to the ETF, at least not initially.

“We really expect the first year to be tempered from an investor appetite perspective, but once we have proven that the computer can do things well, we expect appetite to significantly increase,” he said. “There are some investors who will always prefer the human touch.”