Cash hoarding by Canadian companies is heating up

Canadian companies are selling bonds at the fastest pace on record, even as they face higher borrowing costs in a market that has been rocked by rising rates and global geopolitical uncertainty.

Financial institutions lead Canadian companies to raise more than $114 billion (US$89 million) by issuing bonds in domestic and international credit markets so far this year, according to data compiled by Bloomberg. . This far exceeds the $43.57 billion raised in the same period a year earlier and the $53.56 billion in 2015, the previous record.

“The recent flurry of activity is likely a function of the current state of the markets and expectations that things could get worse, so issuers are grabbing cash when it’s available,” said David Loh, head of markets. financials at HSBC Securities Canada. “I think many issuers are reviewing their plans not just for the next quarter, but for the year, and moving funding activity forward as windows open on concerns we could see more serious disruption to the market later in the year.”

Corus Entertainment raised $250 million by issuing eight-year high-yield bonds on Feb. 23, hours before Russia began invading Ukraine, triggering a spike in volatility. The bonds, which were priced at par for a 6% yield, are listed at around 99.6 cents, according to Bloomberg Valuation’s offer prices on Wednesday.

“The book was done in two hours, which was very fortuitous,” Corus chief financial officer John Gossling said in an interview. “We had to be a little more flexible just in terms of the price and the size of the deal,” Gossling said, adding that his priority was to push the term back by increasing the debt due in eight years, which will be used to repay some bank debt.

Corus, which operates television and radio stations across Canada, is also negotiating new terms for its credit facilities with banks, including a maturity extension, Gossling said. The deal, which is expected to close within weeks, “will put us in a good position for the next few years,” he said.

Earlier this week, Rogers Communications Inc. also had to meet demanding investor terms to complete its deal. The telecommunications company raised nearly US$10.4 billion by selling nine-part US and Canadian dollar bonds to repay loans for the planned acquisition of smaller rival Shaw Communications Inc. The new concessions from issue, or the incremental yield over the issuer’s fair value before the transaction was announced, ranged between 20 and more than 30 basis points for the four loony-denominated tranches, according to two people familiar with the matter.

For context, the Bank of Nova Scotia priced $2.25 billion of 5-year bonds with a new issuance concession of about 10 basis points, in the first widely traded deal after a A week’s hiatus after the start of the war in Ukraine triggered a steady increase in risk spreads.

The extra yield demanded by investors to hold investment-grade dollar-denominated corporate bonds instead of government securities hit 153.8 basis points on Tuesday, the widest since June 2020. Spreads widened by more than 22 basis points since the start of the war. The index’s overall return hit 3.23% on Tuesday, the highest since April 2020.

“The volatility will continue throughout the year,” said Tamara Lawson, chief financial officer of BCI QuadReal Realty, which issued $400 million in green bonds last month to prefund a debt maturity due later this year. year. “And that’s why I think monitoring things and timing will be important for issuers.”