The Winnipeg Sherriton is a hotel with which many Euro-CP and Euro-MTN experts are familiar. Not only is it positioned on Canada's supposedly windiest street corner but it is also the best place to stay when paying a visit to the Canadian Wheat Board (CWB). And it is well visited. For intermediaries CWB is a name which instantly increases street credibility and it is a must for every Euro-CP investor's portfolio. "The Canadian Wheat Board's Euro-CP programme is very well regarded in the market as it provides investors with the rare opportunity to get exposure to Canadian sovereign risk in a variety of currencies. It is the type of programme which is very attractive to the major Euro-CP dealers," says Conor Gallagher, vice president at JP Morgan. The programme was signed in 1996 and with $1.4 billion in outstandings, it's close to touching its $2 billion ceiling. It's an ongoing facility and obviously, frequently used. CWB also has a $2 billion Euro-MTN facility which was signed three years earlier but, with only $403.55 million outstanding, it's clear where CWB's main focus rests. Gordon Menzie, director, treasury operations explains: "The CWB's Euro-MTN programme may not be as visible as the Euro-CP programme since it is used more on an opportunistic basis." CP is traditionally used as a stepping stone into the MTN market, but this has not been the case with CWB. Its original plan was to first do a Euro-CP and then a Euro-MTN programme but the Euro-MTN market was experiencing a growth phase at the time of signing. According to Menzie, it was possible to achieve around 70 to 80 bps in swap-rates. The market was also favourable since structured transactions were popular. There were only one or two other Canadian crown agencies in the Euro-MTN market in 1993 which gave CWB another reason to tap the market. Overall, there were better opportunities in that market at the time. The arranger of the Euro-CP programme is SBC Warburg Dillon Read whilst Merrill Lynch arranges the Euro-MTN facility. But it is clear that the success of the Euro-CP programme is down to both a sophisticated and focused approach by CWB. Menzie says: "We didn't rely on our arranger to paint a picture of the market and direct us. We knew what it was that we wanted to do and it was more a matter of CWB researching the market and then selecting the dealers." The dealer groups on each facility also show little overlap. Menzie says: "For all our dealers, we look at the value-added which they bring and their contribution to the market." There is the option for reverse enquiry on both programmes but to-date it has only been applied to the Euro-MTN. The Euro-CP programme is used more for core funding and so requires a different approach. The theory is that if there is a clear commitment to the dealer group, this will be repaid by a clear commitment back to the borrower. When asked if the forthcoming affiliation between SBC Warburg Dillon Read and UBS will provoke any changes, Menzie points out: "We're not knee-jerk reactionary about mergers. Our reaction will depend on the merged entity's commitment to the market." One thing is clear, CWB is run by some pretty level-headed people. The funding operation is made up of a team of four: one looks at off-shore funding in Euro-MTNs and one at Euro-CP; one looks at the US MTN & CP market out of New York; the other looks at domestic Canadian CP & MTNs. Each is responsible for their own market. Together they try to remain sensitive to the pricing intricacies of each market and price with them in mind. According to Menzie, the team stays aware of CWB's all-in costs but when they can arbitrage between markets they do. "We hold meetings each day to look at strategy and our priority is to go for the market in which we achieve the lowest cost and our best access to capital," says Menzie. Funding-wise CWB is a crown agent and the paper carries the guarantee of the Canadian government. This means CWB has the same ratings as the sovereign: AA+/Aa2 for long-term and P-1/A-1+ for short-term debt. But CWB is a complete stand-alone agency with its own mandate in operational matters. Menzie explains: "We manage it how we see fit. There are no day to day or month to month demands from the government." The only obligation which CBW has is to issue floating rate assets. For Euro-CP, there are two annual portfolios one for C$2 billion - C$4 billion and another which is more static at $3.5 billion - $3.6 billion. Once these levels of core funding have been achieved then the market is looked at more opportunistically. Because CWB is such a safe bet, its investors are typically the central banks since they are interested in high quality, low risk, sovereign-status paper. One of the original aims of the Euro-CP programme was to create for CWB a well established name and to diversify its investor base outside of North America. Both of which they have successfully achieved. The Asia crisis has undoubtedly had some effect on the market although in which way is still too early to tell. As a result, officials at CWB are undecided as to whether they have seen a flight to quality or whether the crisis has highlighted a weakness in the Canadian dollar and caused a flight to dollars instead. Whatever the outcome, CWB looks well-placed to remain one of the Euro-CP market's busiest and best regarded borrowers.
July 28, 2000
