Canadian companies sell more bonds, borrow less cash in Q1

Canadian companies sliced their corporate borrowings by more than half in the first three months of the year, Statistics Canada said Tuesday.

The agency said Canadian non-financial firms borrowed $25.5 billion for the first quarter of 2009. That represented a decline of more than 55 per cent from the October-to-December period of 2008, when companies tapped global credit markets to the tune of $58.1 billion.

The global recession has crimped demand for company products and slashed corporate earnings, Statistics Canada said.

"Falling commodity prices and a slowdown in manufacturing and wholesale trade drove down corporate profits for the second consecutive quarter," the agency said.

Generally, the global credit crisis has been expected to manifest itself in reduced corporate borrowing, both because bankers have less interest in lending and management has less incentive to borrow.

More bonds, please

Statistics Canada pointed out, however, that corporations really boosted their level of borrowing through bond sales during the first quarter of the year.

In the first three months, companies issued $14 billion worth of new interest-bearing notes versus redeeming $8.7 billion in bonds in the final three months of 2008.

Still, the first quarter of 2009 saw activity nowhere near the $24 billion in bond issues in the April-to-June period of 2008 or the $22 billion level reached in the third quarter of the same year.

On the equity side of the Statistics Canada ledger, Canadian firms sold $17 billion worth of new stock in the quarter.

That performance was much better than the paltry $2.3 billion in new equity pushed out in the final three months of 2008.

Still, the first quarter of 2009 new stock issues paled in comparison to the $32.4 billion in new equity flogged in the October-to-December period two years earlier.

Easing credit

Increased interest in selling bonds could reflect a loosening of the credit markets for corporate debt, analysts noted.

As a measure of the potential easing of global credit, the London Interbank Offered Rate — the price banks charge to lend to other financial institutions — has dropped markedly in recent months. From the unheard of four per cent level last winter, the current three-month Libor, as quoted by the British Bankers' Association, stood at 1.3 per cent.

In addition, a number of Canadian companies have announced various financings in recent weeks, some of a fixed-income variety and others of new equity issues.

Three-month stock chart for Rona Inc.

For example, Rona Inc., the retailer of home-improvement supplies, said it had sold 11.6 million of common shares in June to an underwriting syndicate at $12.90 a share. That level is nearly $3 per-share higher than Rona's 52-week low of $10.03 back in November.

IMAX Corp., the movie projection company, sold 9.8 million worth of common shares at $7.15, approximately 75 cents below its current market price but well above its 52-week low of $3.10 reached on November 21.

On the debt side, Canadian Tire Corp. just completed an offering of $200 million in seven-year notes with an attached interest rate of 5.65 per cent.

And, in April, Groupe Aeroplan Inc., the airline loyalty program company, sold $150 million of senior secured notes with a nine per cent interest rate.