After months of frenetic activity in Canada’s bond markets, deal flow has slowed over the past month as corporate issuers take a breather to reassess their funding needs and bankers head off on vacation after the busiest quarter on record.
April and May in particular saw all-time highs for Canadian bond issuance. Investment-grade companies and governments at all levels tapped the market, often multiple times, to deal with short-term liquidity needs and to build up cash reserves. Total Canadian debt issuance, including government bonds but excluding deals that banks led for themselves, topped $100-billion in the second quarter, more than double than in the same three months last year, according to Refinitiv data.
In June, however, corporate issuance started to flag. After a record $14.7-billion worth of domestic corporate debt sold in May, just $4.9-billion was sold in June.
TOP BANKS FOR CANADIAN DEBT deals OVERALL
Rank
Bank
Amount ($billions)
No. issues
RBC Capital Markets
$35.3
149
Nat’l Bank of Canada Fin.
33.5
154
TD Securities
22.2
119
CIBC World Markets
20.5
131
BMO Capital Markets
19.6
105
Scotiabank
19.2
103
TOP BANKS FOR CANADIAN CORPORATE DEBT deals
Rank
Bank
Amount ($billions)
No. issues
RBC Capital Markets
$9.3
50
TD Securities
7.2
41
Scotiabank
7.0
41
CIBC World Markets
6.4
45
BMO Capital Markets
5.5
33
Nat’l Bank of Canada Fin.
1.9
16
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: REFINITIV
TOP BANKS FOR CANADIAN DEBT deals OVERALL
Rank
Bank
Amount ($billions)
No. issues
RBC Capital Markets
$35.3
149
Nat’l Bank of Canada Fin.
33.5
154
TD Securities
22.2
119
CIBC World Markets
20.5
131
BMO Capital Markets
19.6
105
Scotiabank
19.2
103
TOP BANKS FOR CANADIAN CORPORATE DEBT deals
Rank
Bank
Amount ($billions)
No. issues
RBC Capital Markets
$9.3
50
TD Securities
7.2
41
Scotiabank
7.0
41
CIBC World Markets
6.4
45
BMO Capital Markets
5.5
33
Nat’l Bank of Canada Fin.
1.9
16
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: REFINITIV
TOP BANKS FOR CANADIAN DEBT deals OVERALL
Rank
Bank
Amount ($billions, excl. self-funded)
No. issues
RBC Capital Markets
$35.3
149
Nat’l Bank of Canada Fin.
33.5
154
TD Securities
22.2
119
CIBC World Markets
20.5
131
BMO Capital Markets
19.6
105
Scotiabank
19.2
103
TOP BANKS FOR CANADIAN CORPORATE DEBT deals
Rank
Bank
Amount ($billions, excl. self-funded)
No. issues
RBC Capital Markets
$9.3
50
TD Securities
7.2
41
Scotiabank
7.0
41
CIBC World Markets
6.4
45
BMO Capital Markets
5.5
33
Nat’l Bank of Canada Fin.
1.9
16
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: REFINITIV
“April and May were so active that it cannibalized issuance going forward. And so June sort of hit a wall, and even more so in July,” said Andrew Becker, the head of Canadian investment grade debt origination at TD Securities.
“It isn’t because of [a loss of] investor appetite or the market,” Mr. Becker added. “We just don’t have the funding needs in our domestic issuers … like we see [with] this continued supply in the U.S.”
The first two months of the quarter were astonishing, even for the most experienced investment bankers. First there was a rush of deals as companies looked to manage a liquidity shock and replace short-term commercial paper with longer-term debt. Governments raised money to make up funding shortfalls and allow increased spending on public-support programs.
QUARTERLY DEBT ISSUANCE IN Q2 (Historical)
In billions of dollars, excluding self-funded deals
$120
100
80
All Canadian debt issuance
60
40
Canadian domestic corporate debt issuance
20
0
2016
2017
2018
2019
2020
JOHN SOPINSKI/THE GLOBE AND MAIL
sOURCE: refinitiv
QUARTERLY DEBT ISSUANCE IN Q2 (Historical)
In billions of dollars, excluding self-funded deals
$120
100
80
All Canadian debt issuance
60
40
Canadian domestic corporate debt issuance
20
0
2016
2017
2018
2019
2020
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: refinitiv
QUARTERLY DEBT ISSUANCE IN Q2 (Historical)
In billions of dollars, excluding self-funded deals
$120
100
80
All Canadian debt issuance
60
40
Canadian domestic corporate debt issuance
20
0
2016
2017
2018
2019
2020
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: refinitiv
Then came an opportunistic phase. Corporate issuers, from telecoms to pipeline builders, took advantage of the wide-open debt market – propped up by the U.S. Federal Reserve and the Bank of Canada’s corporate bond-buying programs – to prefund projects slated for the second half of the year and into 2021. Others took the opportunity to refinance debt scheduled to come due over the next 18 months.
“Notwithstanding how difficult it is with COVID and the real economy, issuers are still able to get extremely attractive cost of funding,” said Rob Brown, RBC Capital Markets’ co-head of Canadian debt capital markets.
“On the demand side of the equation, investors have an opportunity to buy credit at wider credit spreads than where they could have at the beginning of the year,” he added, referring to the gap between corporate and government bond yields.
The pace of new deals coming to market in May was so extreme that bankers had to hit pause on new issues for several days to give investors time to “digest” the bonds they had already bought, Mr. Brown said.
On the government side of the debt market, increased public spending combined with a hit to tax and fee revenues has led to a bumper bond crop. Deal flow in this market has also slowed in recent weeks, but the outlook remains robust, said Sean St. John, the managing director and co-head of fixed income at National Bank Financial Markets.
“The continued elevated funding programs for many of those government borrowers means [that] for the months and years ahead we expect the market to remain busy and remain elevated,” Mr. St. John said.
While fixed-income bankers spent months scrambling to connect sellers and buyers, investment bankers who work on equity financing and advise on mergers and acquisitions had a slower quarter. Canadian equity issuance from April to June was $8.7-billion, according to Refinitiv. That is up 23 per cent over the same quarter last year but a middling result by historical standards.
M&A activity, meanwhile, contracted dramatically as companies pulled deals to wait for the economic outlook to clear. Canadian firms advised on roughly $12-billion worth of M&A transactions in the quarter, down 73 per cent over the same period last year.
Things could pick up heading into the fall, but the summer months will likely be quiet on Bay Street, Mr. St. John said, as bankers take time off to recover from an unprecedented quarter.
“The end of July, August, it’s going to be crickets,” he said. “Everybody I know is taking time off in August.”
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Mark Rendell