Carnival prices; junk secondary ‘in pain’; Carvana retests low; retail names pressured

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 18 – Carnival Corp. journeyed once again through high-yield waters on Wednesday, extracting $1 billion in a one-day deal.

Meanwhile in the secondary market, selling pressure resumed in full force after a minor reprieve over the past three sessions.

The market opened the day down ¼ point with selling pressure accelerating as the session progressed.

The cash bond market closed the day down ¾ to 1 point with returns for the ICE BofAML US High Yield index brushing up against negative-11% and the CDX High Yield 30 index sinking to a 99-handle.

Tuesday’s hawkish comments from Federal Reserve chair Jerome Powell and weak earnings from retail stalwarts were fanning the flames of recession fears.

“Everybody’s in pain,” a source said.

Carnival’s outstanding issues were down in heavy volume after the cruise line operator priced a new offering.

Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) again plunged in substantial volume with the notes retesting their previous lows.

Triumph Group, Inc.’s 7¾% senior notes due 2025 (Caa3/CCC+) were among the biggest losers of Wednesday’s session with the notes falling more than 6 points on disappointing earnings.

Retail was a worst performing sector on Wednesday following weak earnings from Target and Walmart.

Macy's Retail Holdings LLC’s 5 7/8% senior notes due 2030 (Ba2/BB) and Nordstrom, Inc.’s 5% senior notes due 2044 also had outsized losses.

Carnival takes to the HY seas

In a Wednesday drive-by Carnival priced a $1 billion issue of eight-year senior notes (B2/B) at par to yield 10½%.

The yield printed at the wide ends of both official talk and initial guidance, both of which had been set at 10¼% to 10½%.

The book size was heard to be $1.5 billion at 1 p.m. Wednesday, a sellside source said.

The par-pricing deal broke sharply lower in the secondary market, going out the door Wednesday evening at 98¾ bid, 99¼ offered, the source added.

The Miami-based cruise line plans to use the proceeds to make scheduled payments on debt maturing in 2023 and for general corporate purposes.

The new deal represents Carnival's eighth pass at the primary market since the onset of the coronavirus pandemic in early 2020.

On April 1, 2020 Carnival became something of a pandemic high-yield pioneer as it more or less reopened the Covid-sidelined market by pricing a $4 billion issue of 11½% first-priority senior secured notes due April 2023 at 99 to yield 11.901%.

Its eight deals have generated just over $16 billion of proceeds.

Carnival was the first dollar-denominated deal to price since Monday, May 9 when Frontier Communications Holdings, LLC priced $1.2 billion of first-lien secured notes due May 2030.

The active forward calendar stood empty at Wednesday's close.

Wednesday's risk-off sentiment, reflected in the stock market – with the S&P 500 index falling slightly more than 4% on the day – is unlikely to foster any near-term vitality in the high-yield new issue market, a trader remarked.

Carnival sinks

Carnival’s existing capital structure was under pressure on Wednesday as the cruise line operator was pricing its new issue.

Carnival’s 6% senior notes due 2029 sank 3¾ points to close the day at 82 with the yield now 9.6%.

There was $42 million in reported volume.

The 5¾% senior notes due 2027 sank almost 2 points to close the day at 85 3/8 with the yield 9.653%.

There was $33 million in reported volume.

Carnival’s latest offering came cheap compared to its outstanding issues.

“It pushed down the rest of the capital structure,” a source said.

Carvana plunges

Carvana’s 10¼% senior notes due 2030 again plunged on Wednesday with the notes retesting their previous lows.

The notes, which had climbed back to an 88-handle the previous session, sank more than 4 points as investors again fled weak credits.

The 10¼% notes were wrapped around 86 early in the session but fell to their previous all-time low as selling pressure in the space intensified.

The notes were changing hands in the 84½ to 85½ context heading into the market close, a level previously reached on May 11 after the used car e-commerce company announced mass layoffs.

There was $44 million in reported volume.

Carvana’s 10¼% senior notes have struggled since the $3.275 billion priced at par on April 27.

With retail names under pressure on Wednesday, investors were also reevaluating the prospects for used car sales.

Carvana cited a “recession” in used car sales when it announced its mass layoffs the previous week.

Triumph disappoints

Triumph’s 7¾% senior notes due 2025 were among the largest losers of a brutal tape on Wednesday after the aerospace company reported earnings.

The 7¾% notes sank 6½ points.

They were changing hands in the 83¾ to 84¼ context at the session close, according to a market source.

The yield on the notes was now 14%.

There was $21 million in reported volume.

Triumph’s unsecured notes tanked after the company reported a surprise first-quarter loss and guidance that was well below expectations.

In the current market environment, “anything that disappoints is going to get hurt,” a source said.

Retail under pressure

Retail was the worst performing sector on Wednesday following disappointing results from Target and Walmart.

Macy’s 5 7/8% senior notes due 2030 sank 4 3/8 points to close the day at 85 7/8, according to a market source.

Nordstrom’s 5% senior notes due 2044 were down 5½ points to close the day at 72½.

“Anybody that sells anything was down today,” a source said.

Inflation was taking a toll on the bottom line of several retail companies with investors expecting further margin compression.

Tuesday outflows

The dedicated high-yield bond funds sustained $449 billion of net daily outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $240 million of outflows on the day.

High-yield ETFs sustained $209 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 47 points to close Wednesday at 56.23 with the yield now 6.94%.

The index was down 48 points on Tuesday and 2 points on Monday.

The ICE BofAML US High Yield index sank 63.9 bps with the year-to-date return now negative-10.837%.

The index slid 0.7 bps on Tuesday and 2.8 bps on Monday.

The CDX High Yield 30 index plunged 132.8 bps to close Wednesday at 99.312.

The index gained 33 bps on Tuesday after falling 34 bps on Monday.

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