Alphabet’s Record Canadian Debt Deal Weighs on Bond Spreads

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(Bloomberg) — Alphabet Inc.’s C$8.5 billion ($6.24 billion) bond deal is driving corporate and provincial spreads wider in Canada as investors’ enthusiasm for the hyperscaler’s debt tests the market’s ability to absorb it.

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The Google parent is selling the debt in four-parts of loonie-denominated bonds maturing from five to 30 years. It’s Alphabet’s first loonie-denominated debt deal and the biggest Canadian bond market offering on record. Order books had grown to around C$19 billion to C$20 billion by mid-morning, according to people familiar with the matter, who asked not to be identified discussing private matters. 

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“The Alphabet deal weighed on both corporate and provincial spreads,” according to Les Peterdy, a managing director in fixed income at Beacon Securities. Government issuers backed away from the market, he added.

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Canadian corporate bonds widened 1 to 2 basis points on average against government benchmarks after the Alphabet deal was announced, the people said, adding that some provincial issues also widened.

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The Canadian dollar deal was announced on Tuesday morning on the back of Alphabet’s biggest-ever euro offering of €9 billion. While Canadian investors had anticipated a hyperscaler would tap the market, Alphabet didn’t conduct a widely publicized roadshow that’s customary of first-time issuers in the currency.

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The short lead time came as a surprise, and the lack of notice as well as the size of the deal are contributing to the wider spreads, according to Naveed Sunderji, a portfolio manager at Franklin Templeton Canada. 

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“It’s a pretty big deal for the market to stomach all at once,” Sunderji told Bloomberg. 

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The last mega deal to hit the Canadian dollar market was in 2024, when Coastal GasLink raised C$7.15 billion in the biggest bond sale at the time. Proceeds were used to finance the construction of a natural gas pipeline backed by KKR & Co. For that deal, the market had a month’s notice, Sunderji said.

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The 30-year portion of the Alphabet deal is expected to price at 1.1 percentage point above government benchmarks, tighter by five basis points from initial talks, according to people familiar with the matter. 

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With big tech rarely turning to the Canadian market, investors were eager for the loonie debt deal to diversify their portfolios. One of the last prominent tech offerings came from Apple Inc., which tapped the Canadian market for a C$2.5 billion bond that matured in 2024. 

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The average investment-grade Canadian dollar bond traded at around 86 basis points above government debt as of Monday, according to a Bloomberg index. That’s nearly 10 basis points wider than January lows, mostly driven by large supply. 

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Read CANADA BONDWRAP: Maple Conditions Seen Growing More Favorable 

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