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What has surprised me the most about the debt markets in Canada in 2013
has been their continued robustness. We've seen
large issuance volumes throughout the year.
Earlier in the year, when there was a threat of
increased interest rates we saw a rush to issue in order to lock in
the lower rates, but even after that threat had subsided,
we continued to see strong issuance volumes.
In addition, the issuances have occurred
across the credit spectrum, so from a high A or
AAA issuers all the way down into B- level credit.
And in addition, we’ve also seen
issuances across a range of industries and certainly in some areas that we've
never seen before.
What's been interesting about
the different sectors in the debt market is we've seen an
increase in the number of REIT issuers accessing the market, and in particular,
their issuance of floating rate notes.
Historically, in Canada,
floating rate notes have not formed a large portion of the market, but in the
fall of
2013 we saw a number of REIT issuers issue, for the first time, unsecured debentures
using floating rate notes, which was interesting
because that had never been the case, and once one
issuer issued the floating rate note in the REIT space, it seemed
others seem to follow quite quickly thereafter. Floating rate notes can be
tricky
because unlike fixed rate notes where the interest rate is fixed for a period
of time or for the entire term of
the note, floating rate notes have a period where they're fixed and then they
adjust throughout the term. If the drafting is not precise and accurate
you end up with a situation where you could actually turn a floating rate note
into a fixed rate note or a situation where a floating rate note does not
properly adjust and the issuer doesn't get the benefit
of the floating rate throughout the term. So that's why it's important to,
from both issuer and underwriters perspective, to be very
careful about the drafting of the adjustment provisions in floating rate
notes.
We expect to see continued
robust issuance volumes. We've not seen anything
either in the macroeconomic world perspective or the microeconomic
Canadian perspective
which would suggest that issuance volumes are going to tail off
significantly.
The debt markets are kind of like the little engine that could. They continue to
perform well and they continue to surprise in terms of
when you think that the debt markets will tail off either as a result of the threat of
increased interest rates or for other
either a sovereign debt crisis in Greece or problems with the U.S. economy
where you expect the debt markets to fall off, it actually has not come to
pass,
so we’re quite optimistic about issuance volumes in
2014. We expect to see continued breath in terms of
the types of issuers accessing the market and also
across the credit spectrum that, the types of credit
strength of issuers accessing the market so
overall we’re quite optimistic about 2014.