More Bear Stearns

Among the many uncertainties swirling around the proposed bailout of Bear Stearns Cos. Inc. by fellow New York investment bank JPMorgan Chase & Co. is the fate of $2.65-billion in Maple bonds issued in Canada by Bear Stearns in the past four years or so.

For now, investors appear apprehensive as to whether a pledge by JPMorgan to guarantee Bear Stearns's counterparty risk, if it completes its takeover of the company, will extend to the 11 issues of fixed- and floating-rate Canadian-dollar-denominated debt that it has sold with the help of Scotia Capital Inc. and RBC Dominion Securities Inc.

The price of one $250-million issue of 4.35-per-cent Canadian-dollar bonds Bear Stearns issued in January, 2007, hit $67 on Friday, down from $91 in January, according to limited pricing information available from Bloomberg.

"A great chunk of the value of those bonds has been lost, even though a seemingly solvent entity has come in to take [Bear Stearns] over," one Toronto bond specialist said yesterday of the rescue package announced Sunday.

"The reason is that the deal is not yet actually done, and there can always be surprise impediments," he said.

"Plus there is still a certain amount of ambiguity as to just what the [specific] obligations will be for those bonds."

A spokesman for JPMorgan could not immediately be reached, while a spokeswoman for RBC would not comment on the Bear Stearns Maple bonds, citing client confidentiality.

Scotia Capital spokesman Frank Switzer said the firm is "monitoring the situation to see what happens with Bear Stearns, and we're still making a market in those Maple bonds."

Bear Stearns is not the only U.S. investment bank to have issued Maple bonds. Another is Lehman Bros., whose shares plunged 20 per cent yesterday morning amid investor concerns it may be next in line for a cash crunch.

Other apparently stronger firms also have raised Canadian-dollar debt, including JPMorgan Chase, Goldman Sachs Group and Morgan Stanley.

Indeed, RBC and Scotia led a $2.5-billion issue for Morgan Stanley in February of last year that they billed as not only the largest Maple issue to date but also the largest corporate bond deal of any sort in Canadian markets.

Maple bonds took flight in 2005 after Ottawa ditched rules that limited to 30 per cent the amount of foreign assets in retirement and pension plans.

Figures provided by the Investment Industry Association of Canada show that a total of $26.9-billion was raised in 71 Maple bond issues last year.

This compared with $22.2-billion in 68 issues in 2006, $8.9-billion in 28 issues in 2005 and just $1.5-billion in six issues the year before that.