Royal Caribbean upsizes new deal; loanDepot, Teine Energy at a premium; Lions Gate lags

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 24 – Royal Caribbean Cruises Ltd. (RCL) navigated through the junk bond primary market on Wednesday to land an upsized new bond deal.

Meanwhile, it was a sideways day in the secondary space with the market largely unchanged, a source said.

New paper continued to dominate the tape with several recent deals putting in strong performances.

LD Holdings Group LLC’s (loanDepot) 6 1/8% senior notes due 2028 (B2/B+) were putting in a strong performance with the notes trading on a 101-handle.

While Teine Energy Ltd.’s 6 7/8% senior notes due 2029 (B3/B+) and Liberty Communications of Puerto Rico LLC’s 5 1/8% senior secured notes due 2029 (B1/B+) did not reach the same heights, they maintained a decent premium on a soft day for the market.

However, Lions Gate Entertainment Corp.’s 5½% senior notes due 2029 (B3/CCC+) were lagging their issue price in active trading.

Cruising the high yields

With the United States Centers for Disease Control and Prevention (CDC) roiling the waters for the cruise line sector on Wednesday, Royal Caribbean Cruises braved the gale, navigating its way into the high-yield harbor with a $1.5 billion 5½% seven-year unsecured bullet (B2/B) that ultimately came both upsized and tight to talk.

The debt refinancing deal, which priced at par, was upsized from $1.25 billion.

What's more, the deal appeared on Wednesday morning without a significant amount of reverse inquiry, an investor said.

Not long after RCL announced its deal as a drive-by the CDC, which was being pressed by the Cruise Lines International Association to reopen U.S. ports to cruises by July, told the industry lobbying firm to Belay that, and stated that its stringent framework for a resumption of cruise ship operations, amid the ongoing coronavirus pandemic, would remain in effect until Nov. 1.

Cruise line stocks immediately took on ballast. Norwegian Cruise Line Holdings Ltd. stock fell nearly 5%, a bond trader recounted. Carnival Corp. stock fell 1.89%. RCL stock fell 2¾% while it was in the leverage market with its junk bond deal.

However, bondholders appeared to stand fast, the trader said.

For example, the Carnival Corp. 7 5/8% senior notes due March 2026 – the last of five deals that the beached cruise line brought in 2020, and the sole unsecured tranche – were 107 bid late Wednesday afternoon, unchanged from Tuesday's close, the trader said.

How is it that the harsh headwinds of the CDC can send the cruise stocks tumbling, but leave fixed income investors keening for even its unsecured issues?

Have the junk bond accounts been seized by a siren's song of irrational exuberance, Prospect News demanded to know from its sources.

The responses were various.

Hedge funds like these bonds, a trader said, because they tend to see them as investment-grade paper, absent Covid, yielding 5½%, in the case of the new RCL bullet.

A high-yield bond investor, meanwhile, noted that the junk market anticipated that the cruise lines would be showing up with additional refinancing requirements in 2021, which was going to be a difficult year for the sector, no matter what.

So, while cruise line stockholders were eyeballing the lifeboats on Wednesday, following the CDC announcement, for the bondholders it was Steady ahead.

loanDepot on a 101-handle

LD Holdings’ (loanDepot) 6 1/8% senior notes due 2028 were putting in a strong performance in the secondary space.

The notes were marked at 101 3/8 bid, 101 5/8 offered heading into the market close.

LD Holdings priced an upsized $600 million, from $500 million, issue of the 6 1/8% notes at par in a Tuesday drive-by.

The yield printed at the tight end of yield talk in the 6¼% area.

At a premium

Teine Energy’s 6 7/8% senior notes due 2029 and Liberty Communications of Puerto Rico’s 5 1/8% senior secured notes due 2029 were also trading with premiums in the aftermarket.

Teine Energy’s 6 7/8% notes were marked at par ½ bid, 101 offered heading into the close.

The Calgary, Alta.-based oil and natural gas exploration, development and production company priced a $400 million issue of the 6 7/8% notes at par on Tuesday.

Pricing came in the middle of the 6¾% to 7% yield talk.

While on a par handle, Liberty Communications of Puerto Rico’s 5 1/8% senior secured notes due 2029 maintained a decent premium in the aftermarket.

The 5 1/8% notes were marked at par 3/8 bid, par 7/8 offered, according to a market source.

Liberty Communications of Puerto Rico priced an $820 million issue of the 5 1/8% notes at par on Tuesday.

Pricing came tighter than the 5¼% to 5½% yield talk.

Lions Gate lags

While the majority of deals to price during Tuesday’s session were trading with a premium in the aftermarket, Lions Gate’s 5½% senior notes due 2029 were not among them.

The notes were lagging their issue price.

They were marked at 99¾ bid, par ¼ offered heading into the market close.

Lions Gate priced a $1 billion issue of the 5½% notes in a Tuesday drive-by.

The yield printed tighter than talk for a yield in the 5¾% area.

$524 million Tuesday outflows

The dedicated high-yield bond funds sustained $524 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $349 million of outflows on the day.

Actively managed high-yield funds sustained $175 million of outflows on Tuesday, the source said.

With only Wednesday's totals remaining to go into the tally the combined funds are tracking $1.38 billion of outflows in the week to Wednesday's close, according to the market source.

Indexes mixed

Indexes remained mixed on Wednesday.

The KDP High Yield Daily index rose 9 points to close the day at $69.12 with the yield now 4.2%.

The index was up 12 points on Tuesday and 5 points on Monday.

The ICE BofAML US High Yield index continued to gain on Wednesday.

The index added 18.3 bps with the year-to-date return now 0.576%.

The index gained 13.2 bps on Tuesday and 30.2 bps on Monday.

The CDX High Yield 30 index slid 4 bps to close Wednesday at 108.37.

The index fell 31 bps on Tuesday after gaining 17 bps on Monday.

© 2015 Prospect News.
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