Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

In a first for Canada, a corporate bond deal has been sold the same way share financings are, paving the way for the famously private fixed-income market to attract a new set of investors.

On Monday, CanWel Building Materials Group Ltd. sold $60-million worth of new bonds by way of a bought deal. The debt pays a 6.375-per-cent coupon and will mature in five years.

The bought deal structure is common to Canadian equity investors. Under this model, the investment banks that underwrite a share financing buy the entire deal up front, then turn around and market the stock to investors – making the banks liable for any shares that do not sell. The issuer, however, gets its money no matter what.

Story continues below advertisement

By contrast, the bond market has long relied on marketed offerings, in which investment banks act as sales agents. Because the proceeds are not guaranteed, the companies selling bonds may raise less money than they hoped for if investors scoff at their deals.

Because the fixed-income world has relied on the marketed model for many decades, the switch to a bought deal marks a rather major milestone.

CanWel’s new bonds will also be listed on the Toronto Stock Exchange – another rarity for this market. Debt typically trades “over-the-counter,” which means bond prices are set by private brokers, usually working for banks, making the fixed-income market rather opaque. The bonds are slated to begin trading after the deal closes on Oct. 9.

By adopting the bought-deal model, CanWel hopes to open itself up to retail investors who rarely dabble in fixed-income. Bond offerings are normally dominated by large institutions, such as insurers and pension funds who get first dibs on new offerings. “Retail is always shut out of these issues and they always ask, ‘How can we get in?’" said Sean St. John, head of fixed income at National Bank Financial, which led CanWel’s bond sale.

Even though they’ve rarely gotten their hands on bonds in the past, retail investors are expected to be a source of ample demand for high-yield issues because interest rates remain historically low. “We see the need for yield all day long," Mr. St. John added.

However, there is the risk that by trading on the TSX, this type of debt could fall into the hands of small-fry investors who may not understand the risk associated with high-yield bonds. (In short, they come with a higher risk of default.)

As for corporate issuers, there is hope the bought deal structure will allow more of them to sell debt. Until now, small-to-mid-cap companies looking to raise money have been forced to choose between issuing equity and selling convertible debt, which can be converted to shares. High-yield debt issues such as CanWel’s usually require a minimum size of $150-million, to make them liquid enough to trade on the over-the-counter market.

Story continues below advertisement

By opening up to retail investors, however, smaller companies should have another way to meet their financing needs, because the institutional investors that normally demand the larger deal sizes will not call the shots. At the same time, investment banks are more likely to step up to underwrite these issues because liabilities of between $60-million and $75-million are much easier for their risk committees to swallow.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies