Canadian Imperial Bank of Commerce ranks among the top three banks managing corporate bond sales in Canada for the first time since 2004, displacing Toronto- Dominion Bank as company issuance surges to a three-year high.
The bank’s CIBC World Markets unit ranks second this year after leading debt sales for companies such as Telus Corp. and BCE Inc. Royal Bank of Canada’s RBC Capital Markets is first, extending its streak of more than a decade as the top arranger, according to data compiled by Bloomberg. Bank of Nova Scotia’s Scotia Capital unit ranks third among Canada’s six major banks.
“It’s been an active year,” said Susan Rimmer, a managing director and CIBC World Market’s head of debt capital markets for corporate and financials, in a telephone interview from Toronto. “Interest rates are low, yields have been low, corporate borrowers have been able to lock in attractive costs of term borrowing.”
Companies have raised C$69.4 billion ($68.2 billion) in bond sales this year, up from C$57.2 billion in all of 2009 and the highest since 2007, according to Bloomberg data. Corporate yields rose yesterday to 3.98 percent, after falling to an 18- year low of 3.54 percent on Oct. 19, according to Bank of America Merrill Lynch data.
“Corporations are not only taking advantage of borrowing money at low rates, but also refinancing old debt,” said Hank Cunningham, a fixed-income strategist in Toronto at Odlum Brown Ltd. and author of a book on the Canadian bond market. “It’s collectively saving corporate Canada billions of dollars.”
CIBC World Markets ousted Toronto-Dominion’s investment banking unit from a top-three spot for the first time since 2004. TD Securities ranks fourth after a third-place spot last year, according to Bloomberg data.
CIBC World Markets advanced from fourth spot last year and No. 5 in 2008 by managing more sales of power companies including Hydro One Inc. and Toronto Hydro Corp., and telecommunication firms BCE and Telus. The Toronto-based firm also raised about C$6.2 billion for its parent, Canadian Imperial Bank of Commerce, the country’s fifth-biggest bank.
By comparison, TD Securities had one C$1 billion debt sale this year for its parent, Toronto-Dominion Bank, Canada’s second-biggest bank.
CIBC reported today that fiscal fourth-quarter profit dropped 22 percent to C$500 million, or C$1.17 a share. Before one-time items, the bank had profit of C$1.68 a share, topping the C$1.63-a-share average estimate of 14 analysts surveyed by Bloomberg News.
Elsewhere in credit markets, the extra yield investors demand to own the debt of Canadian corporations rather than its federal government widened 2 basis points yesterday to 144 basis points. Spreads reached 134 basis points on Nov. 15, the narrowest since May 10.
Relative yields on provincial bonds were unchanged at 53 basis points yesterday from the day before, according to Bank of America Merrill Lynch data. They were at 53 basis points at the beginning of November. Spreads have been as low as 51 basis points in November and as high as 54. Yields rose to 3.25 percent yesterday.
Canada yesterday auctioned C$700 million of 30-year real- return bonds, drawing a median yield of 1.07 percent. The government received bids of C$1.4 billion for the 1.5 percent inflation-indexed securities maturing in December 2044, according to a Bank of Canada statement.
The yield on benchmark 10-year government bonds rose 11 basis points yesterday to 3.17 percent as the price of the 3.5 percent security due in June 2020 dropped 95 cents to C$102.65. The 10-year yield has traded between 3.72 percent in April and 2.69 percent in October during the past 12 months.
Canada’s 10-year bonds yielded 20 basis points more than the equivalent maturity U.S. security. The so-called yield advantage in Canada’s favor has declined from 37 basis points on Oct. 7, which was the most since January 2009, according to Bloomberg data.
Canada’s sovereign debt lost 1.04 percent in November, compared with a drop of about 0.85 percent for Treasuries through Nov. 29.
Canada probably added 19,800 jobs last month, Statistics Canada may say tomorrow, based on the average estimate in a Bloomberg survey of 24 economists. The unemployment rate may be unchanged at 7.9 percent.
RBC Capital Markets managed C$19.5 billion in corporate debt sales this year, compared with C$11.8 billion by CIBC World Markets. Scotia Capital led C$10.3 billion in sales, while TD Securities had C$8.55 billion.
Rush to Issue
CIBC World Markets helped arrange a C$1 billion debt sale for Bell Canada, a C$200 million issue by Cogeco Cable Inc. and a C$100 million issue by Enbridge Income Fund last month, according to Bloomberg data. The firm also helped arrange a C$1 billion bond sale for Telus in July, helping the Vancouver-based phone company refinance some of the C$3 billion in outstanding debt left over from its 2001 takeover of Clearnet Inc.
“We have been busy this year, and I would expect we’ll continue to be busy into the new year,” said Rimmer, who joined CIBC World Markets from Bank of America Corp.’s Merrill Lynch unit last year. “I would expect generally issuance to be strong in 2011 as well.”
Odlum Brown’s Cunningham said companies are selling more debt to take advantage of lower borrowing costs.
“The issuers are saving money and obviously they’re deciding that rates are going to rise, and they’re issuing as many bonds as they can and as long a term as they can,” Cunningham said.
If Bank of Canada Governor Mark Carney starts to raise interest rates next year, more companies will issue bonds to beat the increases, Cunningham said.
“I see a busy corporate bond market,” he said.
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