Telus Corp., the third largest wireless carrier in Canada, you can sell floating rate commercial paper to help refinance C $ 1 billion (983 million U.S. dollars) of bonds amid speculation the Bank of Canada will not raise interest rates soon.
"The refinancing, in part, with floating commercial paper, which should have interest rates up a huge amount more than five to 10 years to lock-in the long term with regard to pay in the short term," Chief Financial Officer Bob McFarlane Telmex in a telephone interview.
About 87 percent of the Canadian company's debt is fixed rate wireless, McFarlane said. The central bank kept its benchmark interest rate overnight to 1 percent on 07 December, pause for a second time to assess the global recovery after three previous increases. The yields of future interest rates have fallen this month, which indicates expectations of reduction of higher borrowing costs.
This makes the Canadian market for commercial paper in an attractive location for foreign and local companies to refinance short-term debt. Bank of Canada rates a month commercial paper was 1.07 percent at the end of last week, little changed since October.
The market for short-term corporate debt is starting to recover after shrinking during the global recession, led by auto finance companies and oil and gas pipeline operators, according to the rating company DBRS Ltd. commercial paper worth C $ 812,000,000 was issued by companies in November, raising the volume of outstanding debt of 3 percent to C $ 28,100,000,000 in October and 8.5 percent from a year earlier, Toronto-based DBRS said.
Performance bonuses
Elsewhere in credit markets, the extra yield, or spread, investors demand to own the debt of Canadian companies rather than the federal government was reduced to 139 hours from 140 on December 20, according with the rate of Bank of America Merrill Lynch. The spread was as narrow as 114 basis points in March, according to the data. A basis point is 0.01 percentage point.
The spread of U.S. corporate debt on Treasury bonds was 169 basis points from December 20, according to another Merrill Lynch index, unchanged from December 17. Treasuries have lost investors 2.1 percent this month from December 20, comparing his return for the year to 5.6 percent, Merrill Lynch data show. Canadian government bonds have fallen 0.2 percent this month yesterday, trimming the gain of 2010 to 5.9 percent.
Provincial Bond Markets
In the provincial bond market, the relative yields were 52 basis points yesterday, unchanged from December 20. It fell to 39 basis points in January, the closer this year.
The yield on the June 2011 contract bankers' acceptances, an indicator of the confidence of the cost of short-term loans, touched 1.53 percent yesterday, down three basis points, or 0.03 percentage points. The yield was 1.58 percent at the end of last week and 1.70 percent on Nov. 29.
Bax called contracts averaged 20 basis points above the target overnight central bank. Hedge funds and money managers use contracts to hedge against changes in interest rates and betting.
The spread on the Merrill index of Canadian industrial debt, which tracks 366 bonds, including Telmex, reduced it to 151 basis points yesterday from 152 on 20 December. He started the year at 154 basis points and fell at least 130 in March. relative yields in the Merrill index of Canadian bonds rated BBB, such as Telmex, was 188 basis points yesterday, compared with a low of 2010 from 161 in April. The spread started the year at 197 basis points.
Telmex debt refinancing
Encouraged by the arrival of four new telecommunications operators in the past year, aggressive cost reduction of Montreal-based rival BCE Inc., Telus is the reduction of pension costs and debt refinancing to plow money into your mobile phone business. In the last year, Telmex has refinanced C $ 2 billion from C $ 3 billion in debt left from its acquisition of 2,000 Clearnet Inc. at a lower rate of 5.05 percent. Will reduce borrowing costs by 16 cents per share in 2011, said McFarlane.
The financial director said he is weighing the amount of C $ 1 million set to mature in June to return to issue debt in the short or long term, the reimbursement of part of it from the projected cash flow or operating bank credit lines. The company, whose free cash flow amounted to C $ 339 000 000 last quarter, said it expects free cash flow to increase by 7 percent to 27 percent next year.
"We do not need to refinance the entire amount of the debt, because otherwise would be to build cash," he said. "It makes no sense to pay interest on the debt that is not necessary."
"The most advantageous"
Telmex is in no rush to refinance and can not act until June, said McFarlane. "We will see market conditions and leverage to make an issue that is most advantageous," he said.
The company said it was paying 0.93 percent on the holdings of commercial paper worth C $ 172 000 000 at the end of the third quarter. Gives space to raise their holdings of commercial paper to a range of C $ 400 million to C $ 500 million, Chris Diceman, an analyst at DBRS, said in a telephone interview.
"They're going to look at all options," said Toronto-based Diceman.
The extra yield investors demand to own Telmex 5.05 per cent bonds maturing in July 2020 instead of 10-year government debt was 182 basis points from December 20, compared with 178 basis points on 20 July when the debt was issued, according to Bank of America Merrill Lynch index data.
The interest on the bonds of Telus is likely to continue, with Canada bond yields near record lows, Telmex said McFarlane. Increasing Canada's reference to 10 years old this year has driven the yield up 47 basis points to 3.14 percent.
Reissue
new issuance in the market for short-term corporate debt in 2010 was led by Honda Canada Finance Inc. and VW Credit Canada Inc., followed by pipeline operators Enbridge Inc. and TransCanada Keystone Pipeline LP, research shows DBRS. Issued by corporate debt accounts for about 9 percent of Canada's C $ 314 000 000 000 debt market in the short term, federal treasury bills that make up 55 percent of the total.
However, the market is off its peak of about C $ 60 billion in May 2007, according to DBRS.
"It's certainly seen better days in recent years, as foreign issuers left the market, Michael Ho, vice-president DBRS said in a telephone interview. "The commercial paper market in Canada must recover" the help of local issuers though it will be "very slow" he said.
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