Three junk issuers price another $2.78 billion of new paper; Royal Caribbean gains steam

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 16 – Three high-yield issuers, each bringing a single tranche of notes, priced a total face amount of $2.78 billion on Tuesday.

Meanwhile, it was a soft day in the secondary space as credit markets took a breather from the massive rally of the past three weeks.

The cash bond market was down 1/8 point as the market awaited the Wednesday release of the Federal Reserve’s July meeting minute notes, which may be the next catalyst for major movement in the space, a source said.

While the overall market was softer on Tuesday, the flurry of deals to clear the primary market on Monday were performing well with money being put to work in the new issues.

Royal Caribbean Group’s new 11 5/8% senior notes due 2027 (B3/B) continued to gain after a strong break with the notes closing Tuesday about 2 points above their issue price.

The pricing and secondary market performance of the notes is in stark contrast to Royal Caribbean’s 5 3/8% senior notes due 2027 which priced in early January.

Sensata Technologies BV’s 5 7/8% senior notes due 2030 (Ba3/BB+) closed Tuesday’s session at a slight premium although the notes were briefly underwater in intraday activity.

Outside of the new paper, trading activity in the secondary space was thin.

Allegiant Travel Co.’s recently priced 7¼% senior secured first-lien notes due 2027 (Ba3/BB-/BB+) were active with the notes again falling below par although they remained above their discounted issue price.

$2.78 billion

Monday’s $2 billion of new junk bonds was trumped by an even stronger $2.78 billion Tuesday as three issuers tapped the high-yield market.

Executions indicated that presently the new issue market is hitting on all eight.

In a drive-by Ford Motor Co. priced a $1.75 billion issue of 10-year senior green notes (Ba2/BB+) at par to yield 6.1%, on top of yield talk.

The bullet deal, which came in an investment grade-style execution, had initial guidance in the 6 3/8% area, and was heard to be playing to $2.25 billion of demand shortly after it was announced on Tuesday morning.

EnLink Midstream, LLC also came at the drive-through window on Tuesday, pricing an upsized $700 million issue (from $500 million) of eight-year senior bullet notes (Ba1/BB+/BB+) at par to yield 6½%, at the tight end of talk.

Meanwhile Solenis priced a $325 million issue of 7 1/8% five-year senior secured notes (B2/B-) at 99 to yield 7.361%.

The coupon and yield came tight to talk which had been revised downward from earlier talk.

Timing was accelerated. The deal was announced at the beginning of the week as expected Wednesday business (see related stories in this issue).

Although Solenis cleared a thin forward calendar, given a supportive capital markets backdrop, a string of solid new issue executions now stretching back two weeks, and the fact that the accounts are believed to have cash to put to work, the new issue market could remain busy through the end of the week, sources said on Tuesday.

Royal Caribbean gains steam

Royal Caribbean’s 11 5/8% senior notes due 2027 continued to gain after a strong break, which sources attributed to the notes’ chunky yield.

The 11 5/8% notes traded in a wide range on Tuesday with a low print of par 5/8 early in the session, a source said.

However, the notes stood poised to close the day with gains and were changing hands in the 101¾ to 102 context towards the end of the session.

The yield on the notes was about 11%.

While the notes priced at the tight end of talk, the yield was chunky with the issue pricing well wide of the single-B index, which was trading with a yield of 7.6% as of Monday.

“It’s like the 90s again,” a source said of the coupon.

Royal Caribbean priced an upsized $1.25 billion, from $1 billion, issue of the 11 5/8% notes at par in a Monday drive-by.

The yield printed at the tight end of the 11 5/8% to 11 7/8% yield talk. Initial guidance was in the low-12% area.

The deal was heard to be oversubscribed with Royal Caribbean bondholders who elected to refinance upcoming maturities playing a significant part in the transaction, a source said.

Royal Caribbean’s latest offering was a reflection of the stark repricing of the market since the start of 2022.

The cruise line operator priced a $1 billion issue of 5 3/8% notes due 2027 at par in early January.

The notes rank among the worst performing deals of 2022.

They were trading at 82½ on Tuesday with the yield just shy of 10%, a source said.

Sensata at a premium

Sensata’s 5 7/8% senior notes due 2030 stood poised to close Tuesday at a premium to their issue price. However, the notes were briefly underwater in early trading.

The 5 7/8% notes traded to a low of 99¾ on Tuesday, a source said.

However, they returned to a par handle and were changing hands in the par ¼ to par ½ context heading into the market close.

There was $54 million in reported volume.

The notes were trading in line with the BB index, a source said. However, investors are beginning to eye lower credit tiers with the rally in BB names believed to have run its course.

Sensata priced a $500 million issue of the 5 7/8% notes at par in a Monday drive-by.

The yield printed at the tight end of yield talk in the 6% area.

Allegiant below par

Allegiant’s recently priced 7¼% senior secured first-lien notes due 2027 broke below par in active trading on Tuesday.

However, the notes maintained a premium to their discounted issue price.

The 7¼% notes fell 5/8 point to close Tuesday at 99 7/8, according to a market source.

There was $18 million in reported volume.

Allegiant priced a $550 million issue of the 7¼% notes at 99.486 for a yield of 7 3/8% on Aug. 10.

It was the last deal to clear the primary market before Monday’s flurry of drive-by activity.

$721 million Monday inflows

The dedicated high-yield bond funds saw $721 million of net inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $666 million of inflows on the day.

Actively managed high-yield funds saw $55 million of inflows on Monday, the source said.

The combined funds are tracking $2 billion of inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index shaved off 9 points to close Tuesday at 57.62 with the yield 6.34%.

The index gained 3 points on Monday.

The ICE BofAML US High Yield index slid 15.8 basis points with the year-to-date return now negative 7.502%.

The index gained 18.3 bps on Monday.

The CDX High Yield 30 index fell 47 bps to close Tuesday at 102.57.

The index slid 9 bps on Monday.

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