Corporate debt finds ready market

Brewery deal shows increasing appetite for issues

In

the interests of full true and

plain disclosure, the following items should be mentioned: Molson Coors Capital Finance ULC In addition to raising $900million of 10-year financing in local currency late last week — a deal reported here last week — the issuer also placed $US300million of five-year debt.

And in what some argue is a sign of how much interest there is in buying corporate issues, both tranches were upped in size. Initially, the issuer planned to raise $500-million in local currency and US$250-million in foreign currency.

But the issuer indicated to the market it was prepared to increase the size of the deal if there was sufficient demand. Clearly, the issuer was impressed with the order flow, so it signed up for some of the additional demand. The Canadian-dollar tranche was sold via a private placement: In time the issuer will file a prospectus that will provide the investors with a public-market security. The Molson Coors deal featured two joint book-runners: BMO Nesbitt Burns and TD Securities.

In opting to sell two types of bonds — one denominated in Canadian dollars and the other in U. S. dollars — Molson Coors chose a path that has not been well-travelled. In recent times, Telus Corp. used a similar approach when it sought capitalmarket debt to help finance the acquisition of Clearnet Communications.

Investors may have been in a good mood toward Molson Coors, given that at the time of the merger between the two brewers Molson redeemed a number of outstanding issues. But to do that, Molson was required to pay a good-sized premium, which meant an attractive deal for holders of the bonds.

The Canadian-dollar offering was unusual in another way: The issuer is rated BBB — or the rating level that divides investmentgrade debt from non-investmentgrade debt. And in recent times, there was more chance that an offering of that size would have ended up in the United States.

The two-tranche offering by Molson Coors capped a busy week for the local market. In addition, Bell Canada ( which raised $200-million), Union Gas ($200million), EnCana Corp. ($500million, up from a planned $300million), and Calloway REIT ($200-million) also chose to tap the local market.

Investors also had time to digest a two-part offering by Bank of America. Known as a Maple Leaf Bond, the issue — one part for $400-million of 10-year debt and the other for $250-million of five-year debt — continues a recent trend of non- Canadian issuers selling Canadian dollar-denominated offerings to local investors.

The Maple Leaf Bonds have grown in importance since the federal government did away with the foreign-content rules this year. As a result, investors can now pick and choose their investments from anywhere in the world, without having to invest 70% in the local market.

So what’s behind the recent flurry of debt deals?

A few factors are at work: The summer is over and issuers and investors are keen to get back to work; narrow spreads, a situation that encourages issuers to seek out buyers, and the so-called herd instinct, whereby investors and issuers pile in. “Rather than be complacent about it, they all say, ‘ I should hit the market as well,’ ” noted one participant.

Those factors will be at work this week when the market passes judgment on at least two new issues: a $550-million offering of commercial mortgage-backed securities by Schooner Trust (to be led by TD Securities) and a debut $250-million offering by the Winnipeg Airports Authority (to be led by CIBC World Markets.) Capstone vote

Last Friday, unitholders of three Capstone mutual funds — the balanced fund, the Canadian equity fund and the global equity fund — voted on plans to merge the three low-cost funds in with the more expensive Juniper Equity Growth Fund.

Reaction of unitholders to that plan would even bring a smile to the faces of the bosses of the world’s least democratic countries.

For instance, votes on the two key resolutions up for grabs received the support of more than 90% of those who voted. The two key resolutions dealt with merging with the three Capstone funds, and with amending the trust indenture of the three Capstone funds. While the principle of most votes wins, it’s worth pointing out that less than onethird of the units in Capstone’s balanced fund were voted. On the other hand, 58% of the units in the Canadian equity fund were voted while 73% of the units in the global equity fund were voted.