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Stalled Maple Bond Sales May Resume After Rally: Canada Credit

Sales of Maple bonds are poised for a comeback after the securities outperformed the rest of Canada’s corporate debt market.

Maple issuance may accelerate to C$6 billion ($5.8 billion) to C$8 billion next year, according to Greg McDonald, vice president and director of debt capital markets at Toronto- Dominion Bank’s TD Securities unit. The rest of this year may see an additional C$1 billion to C$1.5 billion in the Canadian dollar-denominated foreign debt, adding to the C$2.4 billion raised since January, he said.

Sales of Maple bonds, nicknamed after the leaf on the Canadian flag, surpassed the C$1.37 billion raised in all of 2009 in April, according to data compiled by Bloomberg. There haven’t been any Maple sales since July, when National Australia Bank Ltd. and Nederlandse Waterschapsbank NV raised C$600 million from two issues, as concern of a global economic slowdown drove investors to the refuge of government debt.

“If you get some stability in the economy, a little bit of positive news, the Maple market will reopen in 2010,” McDonald said from Toronto. “It could be as early as late September or early October.”

The DEX Maple Bond Index has gained 7.06 percent this year, according to PC-Bond, a unit TMX Group Inc. That’s compared with the 6.13 percent return for the Bank of America Merrill Lynch Canadian Corporate Index.

Manulife Sale

Elsewhere in credit markets, Manulife Financial Corp., the country’s largest insurance company, plans to sell U.S. dollar-denominated debt in a benchmark offering, according to a person familiar with the transaction.

The offering will be split between 5- and 10-year notes, said the person, who declined to be identified because the terms aren’t set. Benchmark sales are typically at least $500 million.

Manulife’s 5.059 coupon bond maturing 2041 declined 4.62 percent in the past month, compared to the 0.23 percent return of Bank of America Merrill Lynch Canadian Corporate Bond index.

The extra yield that investors demand to hold Canadian corporate bonds instead of government debt remained at 148 basis points yesterday. Spreads were as wide as 154 basis points in June and as narrow as 114 in March.

Provincial bonds’ relative yields held steady at 56 basis points yesterday. They ended August at 60 basis points, and have been as wide as 71 basis points this year, and as narrow as 39 basis points. Provincial bonds have lost 0.75 percent this month, compared with 0.98 percent for federal bonds and 0.83 percent for broad corporate debt, according to Merrill data.

‘Anything Maple’

Maples have mainly been issued by financial-services firms in Europe, the U.S. and Australia since 2004. Companies use Maples to attract a wider diversity of investors beyond their home countries.

Maples have more risk than Canadian bank bonds because the foreign borrowers may operate in riskier environments than Canada, according to Mark Wisniewski, a portfolio manager with Gluskin Sheff + Associates Inc. Maples are harder to trade in times of market turmoil, he said.

“The appetite for anything Maple is going to be dictated by the economic climate,” said Wisniewski, whose Toronto-based firm manages about C$5.5 billion in assets, including Maple bonds. “The better the economic climate gets, the less risk-averse people get, the more comfortable they get, the more Maples you’ll see.”

Maples were the fastest-growing market for international borrowers in 2007, when Canada had C$25.5 billion in new sales. That plunged to C$500 million in 2008.

‘More Comfortable’

Maples “will be back” as Canadians get “more comfortable” with the outlook of the global economy, McDonald said. “Canadian fixed-income investors can be a cautious group and right now I think they’re in a fairly cautious mode,” he said. “I do think that’ll change.”

Gluskin Sheff + Associates bought Maples this year, including those by National Australia Bank issued in July and the Commonwealth Bank of Australia in April. National Australia Bank’s C$400 million, 4.19 percent five-year Maple priced to yield 168.5 basis points over comparable Canadian government debt. The bond traded yesterday at 102.21, for a yield of 3.69 percent.

“What we like about Maple bonds is they give us a little more diversity than we can get out of Canada,” said Wisniewski. “We buy them selectively, based on names that we know and can understand.”

RBC Capital Markets, Royal Bank of Canada’s investment banking unit, is the top arranger of Maple bonds, after helping manage seven of the 10 deals this year, according to Bloomberg data. Other bank-owned firms arranging sales this year include Scotia Capital, Bank of America Merrill Lynch and TD Securities.

“As we go into calendar year-end and fiscal year-end, we see nothing on the horizon that’s going to shake the confidence of fixed-income investors in terms of supporting new issues,” said Chris Seip, head of Canadian debt capital markets at RBC Capital, owned by the country’s biggest lender. “Maples are percolating.”

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