Apple, Disney Canadian Bond Debuts Were Sparked by Local DemandBy
Reverse inquiries help lure big U.S. borrowers to Maple market
Local demand is on the rise as Canadian banks sell more abroad
Two of the biggest Canadian dollar bond sales this year were triggered by signals of interest from an investor, showing the growing importance of demand in stoking the local debt market.
Both Apple Inc. and the Walt Disney Co. sold Maple bonds after so-called reverse inquiries, or approaches by an investor interested in buying their securities, according to people familiar with the sales who declined to be identified because they’re not authorized to speak publicly. They declined to name the investor. The amount of bonds the investor offered to buy was big enough to convince the companies there was more demand in the wings.
Apple ended up selling C$2.5 billion ($2 billion) of bonds in August, Canada’s largest non-financial bond sale on record, and Disney priced C$1.25 billion of debt this month. That drove this year’s issuance in the Maple market to almost C$14 billion, the most since 2007 and more than triple the average from 2008-2016.
“Canada’s open for business,” said Alex Schwiersch, who helps manage about C$3 billion in fixed-income assets at Invesco Canada Ltd in Toronto. While attractive funding levels are key for the issuers, he said, “the demand pushes the price down a little bit and plays into the funding costs side of the criteria that the corporate treasurers have.”
The surge in Maple bond issuance has been sparked by several factors. Pricing has become attractive from a currency swap perspective and Canadian banks have left space to fill in the local market as they increasingly seek funding abroad.
That’s allowed the issuers to increase the size of their transactions. A year or two ago it would be difficult for Apple or Disney to find demand for the size of their bonds.
As a result, big global businesses are issuing Maple bonds for the first time -- not just banks or quasi-sovereign agencies like before the global financial crisis when the market was last thriving. Apart from Apple and Disney, the list of newcomers to the Maple market this year includes such companies as McDonald’s Corp., United Parcel Service Inc. and PepsiCo Inc.
As Maple issuance was on the rise, the share of financials in Canadian dollar corporate bond sales fell to 44 percent this year, the least since at least 1999 when Bloomberg started collecting the data. Total corporate bond sales have reached C$90.9 billion year-to-date with the market on track to beat the record C$107.4 billion of issuance from 2013.
“The revival of the Maple Bond market, be it temporary or not, has had the benefit of bringing a slew of new and well known corporate names to the market,” Jean-Francois Godin, an analyst at Desjardins Capital Markets, wrote in a note on Oct. 10. “Given how well these deals went, the increased diversification was undoubtedly very welcomed by investors.”