Cornerstone junk bond deal ready to price; cruise line paper moves higher

By Paul A. Harris and Cristal Cody

Tupelo, Miss., July 19 – The junk bond deal backing the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice is teed up and set to price on Wednesday, on schedule.

In the secondary, the junk travel sector was lifted on Tuesday with several names higher on the day.

Carnival Corp.’s notes traded more than 1 point to over 3 points better by the close.

The Miami-based cruise operator’s 10½% senior notes due 2030 (B2/B) had some of the day’s heaviest secondary action with the issue trading up 2¾ points, a source said.

Royal Caribbean Cruises Ltd.’s notes were seen about 2½ points better Tuesday.

Norwegian Cruise Line Holdings Ltd.’s 5 7/8% senior notes due 2026 (Caa1/B-) issued by NCL Corp. Ltd. were moving more than 3 points higher at 81½ bid on $15 million of secondary supply, according to a market source.

“There was a lot of buying higher,” a source said. “Carnival Cruise was up a few bucks. Royal Caribbean was also up a few bucks.”

Primary

In Tuesday's primary market Camelot Return Merger Sub Inc. upsized its offering of six-year non-call-two senior secured notes (B2/B) to $710 million from $600 million, and talked them with an 8¾% coupon, discounted to approximately 90.3, to yield in the 11% area (wide to early yield guidance of 10½%).

The deal is backing the buyout of Cornerstone.

With the upsize of the notes offer the concurrent first-lien term loan downsized to $300 million from $410 million (see related story in this issue).

There is only one other offer presently in the market.

Patagonia HoldCo LLC is on the road with a $500 million offering of seven-year senior secured first-lien notes (B+) supporting the buyout of Lumen Technologies' Latin American operations by Stonepeak.

Initial guidance specifies a 7½% coupon at OID 86.

Pricing is set for the week ahead.

Secondary tone

Financial markets saw an upswing after Monday’s weak tone with stocks jumping more than 2% as volatility receded.

The iShares iBoxx High Yield Corporate Bond ETF finished up 99 cents, or 1.32%, to $75.76.

The KDP High Yield Daily index rose 15 points to 55.77 and a yield of 7.07% on Tuesday from 55.62 with a yield of 7.13% on Monday.

The CDX High Yield 30 index also climbed to 99.875 on Tuesday from 98.68 at the start of the week.

Cruise lines higher

Carnival’s 10½% senior notes due 2030 (B2/B) climbed 2¾ points in strong trading action Tuesday, going out at 86¾ bid, a source said.

Volume totaled $21 million.

Carnival’s 6% senior notes due 2029 (B2/B) rallied 2½ points to 83 bid on $17 million of paper changing hands.

The space was higher with Miami-based cruise operator Royal Caribbean’s 5½% senior notes due 2026 (B2/B) also up 2¼ points at 75½ bid, a source said. Secondary activity in the issue was strong with $17 million of volume reported.

Travel

American Airlines Group Inc.’s paper also “traded up” over the day, a market source said.

American Airlines Inc.’s 11¾% senior secured notes due 2025 (Ba3/B) were 1¼ points higher at 108 bid on $14 million of secondary supply.

$872 million Monday outflows

The dedicated high-yield bond funds sustained $872 million of daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $641 million of outflows on the day.

Actively managed high-yield funds sustained $231 million of outflows on Monday, the source said.

The combined funds are tracking $1.36 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Despite $17.8 billion of outflows in the second quarter of 2022, calls, tenders, maturities and an extremely light new issue calendar have combined to generate the highest cash balances that the high-yield mutual funds have seen since the first quarter of 2020, the market source said, citing a report that JPMorgan made to its clients.

Analysts estimate that cash balances were 4% at the end of June, 60 basis points above the long-term average, and add that they will have no doubt been pushed higher by July's anemic volume of issuance.

By comparison, cash balances in the first quarter of 2020 – as the dire implications of the global coronavirus pandemic started becoming clear to investors – peaked at 4.86%, the highest they had been in more than eight years.

For historical context, the cash balances of the high-yield funds have been above 4% in approximately one-fifth of the quarters since 2010, according to the market source.

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