Canadian debt issuers can’t always rely on U.S. markets

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The conventional thinking goes like this: if you're a riskier Canadian company, you're better off issuing debt in the U.S.

Yes, a high-yield market exists in Canada, but it's not nearly as liquid as the Americans'. Ours is better suited for well-known, higher quality issuers, while the more speculative companies are better off trying their hand with U.S. investors. They love the risky stuff.

So you can imagine the surprise late last week when not one, but two Canadian high-yield issuers were shut out of the U.S. market. Bombardier tried to raised $1-billion, while Eldorado Gold Corp. yanked its own $500-million offering.

If you're worried that this is the start of some sweeping narrative, take a deep breath. Yes, this was surprising, but there were too many factors at play to draw any clear conclusions.

For starters, the two companies operate in totally different sectors, and the circumstances around each deal were totally different.

Take Bombardier. On the same day that the company announced its offering, rating agency Standard & Poor's downgraded Bombardier's debt to BB as a sort of punishment for pushing back the delivery date of its new C series jets. Investors were blindsided and Bombardier figured it was better to pull the deal until the confusion subsided.

As for Eldorado, it probably wasn't the best time to launch a deal. Equity investors had been quite frantic during the two weeks prior, and credit default swap spreads for both investment grade and high-yield debt had blown. For further proof of the fear, yields on the iBoxx High Yield Corporate Bond Fund climbed to 5.72 per cent on Friday, up from 5.04 per cent at the start of the month.

As proof that this isn't the end of days, remember that just a day before Eldorado launched its own deal, New Gold successfully sold $500-million of new debt that paid a coupon of 6.25 per cent. So, yes, being cautious is fine, but the situation can quickly get better.