Carnival prices $4 billion offering; Yum! Brands weakens; AA drops; Sprint active post-merger

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 1 – One megadeal cleared the domestic high-yield primary market on Wednesday, although the trade was far from typical.

Carnival Corp. priced an upsized $4 billion of 11½% three-year first-priority senior secured notes (Baa2/BBB-) on Wednesday.

While the notes were rated investment grade, the deal was handled by the high-yield desk and played to high-yield and distressed-debt accounts.

Meanwhile, the rally in the secondary space cooled on Wednesday as equities plunged at the start of the new quarter.

Credit spreads were again moving wider after a grim forecast for the expected toll of the coronavirus pandemic.

After skyrocketing out of the gate, Yum! Brands, Inc.’s newly priced 7¾% senior notes due 2025 (B1/B+) were slightly weaker on Wednesday.

American Airlines Group Inc.’s senior notes were again trading off after a multi-billion draw down from its revolving credit facilities.

Sprint Corp.’s senior notes were active and making nominal gains following the completion of T-Mobile’s hard fought for acquisition of the company.

Carnival launches

In the primary market, investment grade rated Carnival priced an upsized $4 billion issue of 11½% three-year first-priority senior secured notes (Baa2/BBB-) at 99.00 to yield 11.901% on Wednesday.

The issue size was increased from $3 billion, and the issue was priced on the high-yield syndicate desk.

The coupon printed 12.5 basis points inside of coupon talk in the 12% area, and 100 bps beneath the initial coupon talk of 12½%. The price came on top of final price talk and at the rich end of initial price guidance of 98 to 99.

The upsize had been expected, as the deal was heard to be as much as four-times oversubscribed, market sources said who added that interest in the Carnival investment grade first priority paper was intense among high-yield investors and distressed-debt accounts.

A proposed €300 million minimum tranche was withdrawn.

Away from the novel Carnival trade, the primary market remained quiet on Wednesday.

Yum! weakens

Yum!’s newly priced 7¾% senior notes due 2025 were losing steam on Wednesday after a blockbuster start in the secondary space.

The notes were down about ½ point in high-volume activity.

They were changing hands in the 104¼ to 104½ context during Wednesday’s session.

The 7¾% notes closed out Tuesday at 104¾ bid, 105 3/8 offered, a source said.

The Louisville, Ky.-based fast food company reopened the primary market on Monday after the market’s nearly month-long hiatus.

While pricing was materially wider, the deal was in high demand during bookbuilding and in the aftermarket.

Yum! priced an upsized $600 million issue of the 7¾% notes at par in a Monday drive-by.

Pricing came at the tight end of the 7¾% to 8% yield talk.

The deal was heavily oversubscribed and upsized from $500 million, sources said.

AA losses mount

Losses continued to mount for American Airlines’ junk bonds on Wednesday after the airline drew down from its revolving credit facilities.

While volume was light, the company’s 3¾% senior notes due 2025 dropped 8½ points to close Wednesday at 62¼.

American Airlines priced a $500 million issue of the 3¾% notes at par on Feb. 20.

The company’s 5% senior notes due 2022 traded off 4½ points to close the day at 76, according to a market source.

American Airlines announced Wednesday that it had borrowed $2.73 billion under three of its revolving credit facilities, including the full $450 million in a 2016 revolver, the full $750 million under a 2013 revolver, and $1.53 billion under a 2014 revolver leaving $110 million left, Prospect News reported.

The end of a saga

Sprint’s junk bonds were making nominal gains following the long-awaited closure of its merger with T-Mobile.

The merger completes a multi-year saga that has whipsawed Sprint’s junk bonds.

However, upon completion of the merger, Sprint’s notes saw little movement.

Sprint’s 6 7/8% senior notes due 2028 were up about ½ point to close Wednesday at 114 7/8.

The notes closed last Friday at 109 but have been on the rise throughout the week in anticipation of the completion of the merger.

Sprint’s 7 7/8% senior notes due 2023 continued to change hands between 110¼ to 110½ on Wednesday.

While the notes were not active, the completion of the merger triggers the redemption of Sprint’s recently priced 7¼% senior notes due 2028.

The notes become callable at 101 upon a change of control.

Sprint priced a $1 billion issue of the 7¼% notes at 99 on Jan. 30.

With the merger now complete, Sprint’s capital structure becomes guaranteed by T-Mobile and T-Mobile USA.

S&P upgraded Sprint’s unsecured debt to BB from B.

T-Mobile plans to price an offering of senior secured notes to pay down debt under the company’s bridge credit agreement, which helped fund the merger.

The company also closed on $8 billion of credit facilities.

S&P downgraded T-graded T-Mobile’s unsecured debt to BB from BB+ as a result of the merger.

$1.88 billion Tuesday inflows

The dedicated high-yield bond funds saw $1.88 billion of net inflows on Tuesday, the second consecutive session in which daily flows handily topped the heady $1 billion mark, according to a market source.

Actively managed funds saw $1.65 billion of inflows on Tuesday, following the $1.15 billion of inflows that the actively managed funds saw on Monday, the source said.

High-yield ETFs saw $288 million of inflows on Tuesday.

On Monday the combined funds saw $1.685 billion of net daily inflows.

As of Tuesday's close, the combined funds were tracking $6 billion of inflows for the week to Wednesday's close, according to the market source.

Indexes in the red

Indexes were in the red on Wednesday.

The KDP High Yield Daily index gave back all of its gains from the previous session. The index was down 57 bps to close Wednesday at 60.94 with the yield now 8.2%.

The index gained 50 bps on Tuesday and 61 bps on Monday.

The ICE BofAML US High Yield index sank 112.4 bps with year-to-date returns now negative 14.247%.

The index gained 54.8 bps on Tuesday and 59 bps on Monday.

The CDX High Yield 30 index plummeted 305 bps to close Wednesday at 90.53. The index was down 156 bps on Tuesday after gaining 18 bps on Monday.

© 2015 Prospect News.
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