Alberta Considers Debt Buybacks to Smooth Its Issuance

(Bloomberg) -- Alberta may consider buying back some of its bonds in an effort to smooth its maturities as its debt outstanding rises.

The buy-back strategy, including terms and amounts, is still under analysis, according to Jerrica Goodwin, an Edmonton-based spokeswoman at Alberta’s finance ministry said. The plan, which may start as soon as the next fiscal year beginning in April, won’t reduce overall debt outstanding but could allow Alberta to spread out maturities over the longer term, she said.

Managing the maturity profile is increasingly important for the oil-producing province because net financial debt is poised to rise 69% to C$46.4 billion ($34.9 billion) by the end of March 2023 from last fiscal year, according to government projections. Last week, the province’s credit rating was cut by Moody’s Investors Service to Aa2 -- its third-highest investment grade -- citing concentrated reliance on non-renewable resources, mainly oil, as well as “continued fiscal pressures.”

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Alberta is seeing increasing borrowing costs compared with Ontario and Quebec, as the decline in oil prices and a pipeline bottleneck hurt corporate profits, putting a drag on its finances. The province last sold long-term debt in the domestic market on Sept. 24 when it added C$1 billion to its 2030 bonds, according to data compiled by Bloomberg.

The province has covered almost 50% of its funding for the current fiscal year. It’s continuing to look at issuing transactions in currencies including dollars, euros and pounds, the official said. Alberta last tapped the U.S. dollar benchmark-size market in November when it raised $2.25 billion of 5-year bonds.

Investors demand an extra 11 basis point to hold 10-year bonds from the Western Canadian province over similar duration securities from Ontario. The gap was as tight as 7.7 basis points on July 31 before widening to as much 12 basis points after the federal election, according to Bloomberg Valuation bid prices.

Alberta has more room to time bond market transactions as its cash position is set to improve with the closing of five regulated funds which will now flow through to the treasury, the spokeswoman said.

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