Junk selling accelerates; LifePoint, Worldpay, Shelf Drilling fall; Carnival lower post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 3 –Selling accelerated in the junk bond secondary space as Treasury yields continued to climb.

The latest JOLTS report rattled the market with an unexpected growth in job openings fueling expectations for an additional rate hike.

“We were off to a brutal start with the bond market getting whacked,” a source said.

The cash bond market opened down ¼ point and continued to fall as the session progressed with the market ending the day down ¾ point.

Treasury yields hit on multi-decade highs with the two-year Treasury yield closing Tuesday at 5.163%, the 10-year yield at 4.799% and the 30-year yield hitting 4.951% before closing the day at 4.925%.

Credit spreads continued to push out with the CDX index spread blowing past 500 basis points, a source said.

Cash bond spreads have widened about 45 bps and the CDX index about 100 bps since the Federal Reserve’s Sept. 20 announcement.

The market had held up well amid the move in Treasuries with the majority of deals to price in September trading at or above issue prices.

However, the cracks were beginning to show with several recent deals falling underwater over the past two sessions.

Losses continued to mount for LifePoint Health Inc.’s 11% senior secured notes due 2030 (B2/B), which broke below a 98-handle on Tuesday.

GTCR W-2 Merger Sub LLC’s 7½% senior secured notes due 2031 (Ba3/BB/BBB-) backing the buyout of Worldpay sank further underwater in heavy volume.

And Shelf Drilling Holdings Ltd.’s 9 5/8% senior secured notes due 2029 (B3/B-/B), a strong performer until Monday’s session, was driven well below the issue price in active trade.

Outside of recent issues, Carnival Corp.’s senior notes were lower in active trade following the recent release of earnings.

Primary

The dollar-denominated new issue market remained idle on Tuesday, while the active forward calendar ended the session bereft of any dollar offerings.

The sole news nugget in the high-yield primary markets of the industrialized Western Hemisphere came from Italy-based Guala Closures SpA which set initial talk on its €350 million offering of long five-year senior secured floating-rate notes (B1/B+) with a 400 to 425 bps spread to Euribor at a discount of 99.

Books close Wednesday.

Proceeds from the notes will be used to fund a dividend, as well as to pay for a 70% stake in the Chinese company Yibin Fengyi Packaging Co., Ltd. and for general corporate purposes, including further bolt-on acquisitions.

Also on Monday, Moody's Investors Service changed its outlook on the Italian packaging firm to negative from stable, assigning a B1 rating to the floating-rate notes.

The change in outlook reflects significant deterioration in Guala's credit metrics pro-forma for the proposed transaction, as well as weakening consumer sentiment and geopolitical risk, Moody’s said, adding that after the transaction the company will be weakly positioned in its B1 rating with limited room for underperformance.

LifePoint losses mount

Losses continued to mount for LifePoint’s 11% senior secured notes due 2030 with the notes now 2 points below issue price two sessions after pricing.

The 11% notes sank 1½ points in active trade to break below a 98-handle.

They were trading in the 97 7/8 to 98 1/8 context heading into the close, a source said.

The yield rose to 11 3/8%.

There was $24 million in reported volume.

LifePoint priced a $1.1 billion issue of the 11% notes at par on Sept. 29.

While the notes had a strong break, they gave back all gains and broke below par during Monday’s session.

Worldpay heavy

Worldpay’s 7½% senior secured notes due 2031 sank further underwater in heavy volume on Tuesday.

The notes shed 1 point under selling pressure to a 98-handle.

They were trading in the 98 3/8 to 98¾ context heading into the market close, a source said.

There was $27 million in reported volume.

The 7½% notes have put in a solid performance in the aftermarket since the $2.18 billion issue priced at par on Sept. 20.

While the notes priced tight, they have largely held at or above their issue price since hitting the aftermarket, a source said.

However, the notes fell to a 99-handle amid Monday’s sell-off.

Shelf Drilling under water

Shelf Drilling’s 9 5/8% senior secured notes due 2029 sank below their discounted issue price on Tuesday.

The notes shed another 1 point to close Tuesday wrapped around 97, a source said.

The yield was brushing up against 10½%.

The notes were initially strong performers and closed last Friday wrapped around 99, about a 1 point premium from their issue price.

However, the notes gave back all gains on Monday.

Shelf Drilling priced a $1.095 billion issue of the 9 5/8% notes at 98.184 to yield 10 1/8% on Sept. 28.

Carnival lower

Carnival’s senior notes were lower in heavy volume on Tuesday, which sources partly attributed to Tuesday’s market conditions and partly attributed to a recent earnings report.

The notes were off about ½ point across the board, a source said.

The 6% senior notes due 2029 were the most actively traded tranche with the notes closing the day at 84 3/8 with the yield about 9¾%.

There was $33 million in reported volume.

The 10½% senior notes due 2030 traded down to 102 1/8 with the yield also about 9¾%.

There was $25 million in reported volume.

The 5¾% notes due 2027 traded down to 89 7/8 with the yield about 9 3/8%.

There was also $25 million in reported volume.

Carnival recently posted record revenue and its first profitable quarter since the pandemic.

However, forward guidance came in below expectations.

The company has paid down about $4 billion in debt since early 2023 and stated its intention to continue to pay down debt with the goal of achieving investment-grade ratings, Prospect News reported.

However, the company expects to end 2023 with $31 billion in debt and its refinancing risks are high, a source said.

Fund flows

The dedicated high-yield bond funds sustained $717 million of net daily cash outflows on Monday, the most recent session for which data was available at press time, according to market source.

High-yield ETFs saw $712 million of outflows on the day.

The cash flows of the actively managed high-yield funds were generally flat on the day, with those funds sustaining $5 million of outflows on Monday, the source said.

The combined funds are tracking $598 million of net outflows on the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index fell 42 bps to close Tuesday at 48.86 with the yield 8.21%.

The index was down 27 bps.

The ICE BofAML US High Yield index sank 83.2 bps with the year-to-date return now 4.55%.

The index fell 57.2 bps on Monday.

The CDX High Yield 30 index fell 77 bps to close Tuesday at 99.77.

The index was down 24 bps on Monday.

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