Tim Hortons Plans to Sell Bonds for First Time: Canada Credit

Tim Hortons Inc. (THI), Canada’s largest fast-food restaurant chain, plans to sell debt for the first time through a private placement of as much as C$250 million ($245 million) by the end of the second quarter.

The almost 3,600 coffee-and-doughnut shop chain founded by the former hockey player Tim Horton has already used a forwards agreement to guard against an increase in interest-rate volatility before the transaction closes, the Oakville, Ontario-based company said the yesterday in a statement. Proceeds will be used to refinance part of a C$300 million term loan.

Bond issuance is rising in Canada as expectations climb for the Bank of Canada to increase lending rates by as early as next month. Canadian banks sold about C$12 billion of debt in the first four months of this year, up from C$5.4 billion in the same period of 2009, according to Canadian Imperial Bank of Commerce data.

“Tim Hortons is certainly a recognizable name in Canada, and it would give us great diversification if we purchased it,” said Doug Gardiner, head of Canadian public fixed income at Sun Life Financial Inc. (SLF) in Toronto. “It’s certainly a name we would be eager to look at.”

Elsewhere in credit markets, two provinces issued 10-year bonds yesterday. Ontario increased its 4.2 percent bonds due in June 2020 yesterday by C$750 million. New Brunswick increased its 4.5 percent bonds, also due in June 2020, by C$500 million.

Overnight Index Swap

The premium investors demanded to hold corporate instead of government debt fell to 1.42 percentage points yesterday from 1.44 percentage points on May 7, according to a Bank of America Merrill Lynch index.

The rate on Canada’s two-month overnight index swap, which trades based on what investors predict the central bank rate will average over that time, increased yesterday to 0.4010 percent from 0.3950 percent the prior day. The rate was 0.286 percent the day before the central bank dropped a conditional commitment to keep its policy rate unchanged on April 20.

Tim Hortons reported first-quarter profit yesterday that increased 19 percent to C$78.9 million, or 45 cents a share, topping analysts’ estimates. Its stock gained 3.3 percent to a two-year high of C$35.48.

A Tim Hortons spokesman, David Morelli, confirmed the bond sale will be the company’s first.

Companies often issue bonds privately if they’re not going to be regular issuers of debt, said Kathryn Fric, Sun Life’s managing director of Canadian public fixed income in Toronto.

“In this case, they’re unlikely to be a regular issuer, and the issue isn’t going to be that large,” Fric said. “It’s cheaper for them to come to market private under those circumstances.”

A Tim Hortons issue could be “very popular,” as investors in Canada diversify beyond bank bonds, said Sheldon Dong, vice president of fixed-income strategy in Toronto at Toronto-Dominion Bank’s TD Waterhouse unit.

“There’s a lot of brand-name recognition,” Dong said. “I doubt they’ll have any problems coming up with a bond to sell.”

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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