More stable prices have led to speculation that suitors are again eyeing Canadian oil fields, feeding gains in the bond market
Canada's bond market is signalling that formerly distressed energy firms such as Teine Energy Ltd. may soon become takeover targets as oil prices stabilize.
Teine, a Canadian oil and gas producer majority-owned by the Canada Pension Plan Investment Board, has become the best performer in Canada's junk-bond market this year, returning 30 per cent. Teine was planning an initial public offering last year before crude collapsed. Bonds of Canbriam Energy Inc., of which owner Warburg Pincus LLC was looking to sell a stake last year, are also beating peers with a 13-per-cent return.
More stable prices after oil's 50-per-cent slump have led to speculation that suitors are again eyeing Canadian oil fields, feeding gains in the bond market, said Geof Marshall, who holds the debt of Teine as part of the $9-billion (U.S.) of high-yield assets he runs at CI Investments in Toronto. Mr. Marshall boosted investments in high-yield energy as prices tanked in November.
"The right reserves, the right bond structure, and the right sponsor can point to an attractive entry point" for bonds of private-equity backed firms, Mr. Marshall said by e-mail. "Even with prices up strongly there is still good money to be made getting involved or remaining involved in the right complexes."
Above par
Teine, the largest light-oil producer in the Viking formation in southwestern Saskatchewan, was working on a plan to raise as much as $700-million (Canadian), people with knowledge of the matter had said in early September, before oil tumbled from more than $90 (U.S.) a barrel. With crude prices up 23 per cent since March 2, Teine's owners may have a window to reassess reducing their stake.
Teine's bonds, which were trading at more than 12 per cent in December, now yield 7.2 per cent, giving them a price of 98 cents on the dollar. Bonds such as Teine's U.S. dollar-denominated notes that yield 10 percentage points more than Treasuries are usually considered distressed.
Bonds of Canbriam have also jumped above par since April. Like Teine, their returns are dwarfing the 2.2 per cent an investor made from high-grade Canadian corporate bonds and the 4 per cent earned on junk bonds this year, according to Merrill Lynch data.
Jason Denney, president of Teine, didn't immediately return phone and e-mail messages. Mei Mavin, a spokeswoman at CPPIB, declined to comment on whether a sale or IPO is under way.
Credit positive
It wouldn't be the first time bond prices had presaged the sale of a company. In the days leading up to the Canadian government's decision to approve CNOOC Ltd.'s $15.1-billion takeover of Nexen Inc. on Dec. 8, 2012, Nexen bonds rallied.
Private-equity firms such as Canbriam's owner Warburg Pincus typically seek to exit an investment through an IPO or sale within five years.
"They are credit positive because they use the proceeds to reduce debt or fund capital expenditure that help grow the company," said Paresh Chari, a Toronto-based analyst at Moody's Investors Service.
Mary Zimmerman, a spokeswoman for Warburg Pincus in New York, declined to comment. Rosetta Lubbers, a Canbriam spokeswoman, said the company doesn't comment on speculation about its strategy.
The past two Canadian energy explorers to go public, Seven Generations Energy Ltd. and Northern Blizzard Resources Inc., won debt-rating upgrades following their IPOs.