Junk primary quiet but crossover names active; Carnival pulls back; Citrix softer; Veritas falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 16 – Although the high-yield primary market put up a goose egg on Wednesday, there was activity in the crossover space.

Meanwhile, secondary trading number pulled back on Wednesday as Federal Reserve speakers and strong retail data threw water on the dovish pivot rally sparked by recent inflationary figures that came in softer than expected, sources said.

The cash bond market opened Wednesday unchanged but was dragged down 1/8 to ¼ point with equity indexes in the red.

Losses in Carnival Corp.’s capital structure outpaced the broader market with profit-taking in the name after a strong rally over the past week.

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) were also softer in heavy volume.

However, Veritas US Inc. and Veritas Bermuda Ltd.’s 7½% senior secured notes due 2025 (B2/B) were among the largest losers of the session with the notes falling more than 6 points.

Crossover business

In the primary market, crossover issuer OpenText priced a $1 billion split-rated issue of Open Text Corp. five-year senior secured notes (Ba1/BBB-/BBB) at par to yield 6.9%, with a 304 basis points spread to Treasuries.

The yield printed at the tight end of yield talk that was set in the 7% area (plus or minus 10 bps). Initial guidance was in the Treasuries plus 350 bps area.

The deal was priced on the investment grade desk, sources said.

However a high-yield bond trader saw the notes quoted at both prices and spreads in the secondary market, late Wednesday afternoon, indicating that the notes were trading in both investment-grade-style trades as well as high-yield-style trades.

Heading into Wednesday's close the new Open Text 6.9% notes due December 2025 were 100.7 bid, but were also trading at 287.7 bps bid, the trader said.

While the junk new issue market has been quiet for the past couple of days, the crossover market has been active.

On Tuesday United Rentals (North America), Inc. priced a highly oversubscribed $1.5 billion issue of 6% first-lien senior secured notes due December 2029 (Baa3/BBB-).

The deal, which priced on the high-yield syndicate desk, its credit ratings notwithstanding, came at par to yield 5.999%.

A high-yield portfolio manager who was tuned into the United Rentals deal said that investors were licking their chops on Tuesday morning as the deal was being whispered in the mid-to-high 6% area.

However much of that yield was withdrawn from the transaction as the day wore on, the investor said, adding that in the end United Rentals, at 6%, was nothing to write home about.

Asked to look ahead, into the rapidly closing window of 2022 new issue opportunity, the investor said that a week ago it appeared as though the remainder of the year would be a bust, in terms of junk issuance.

However this week looks better than last week, the manager noted, adding that primary market activity remains a possibility.

For the investment banks, 2022 bonuses are now pretty much “baked in,” the portfolio manager said.

“It's been a lousy year for the investment banks, and nothing that happens between now and 2023 will materially change that,” the investor said.

Hence issuers weighing a pass at the market either during late 2022 or early 2023 would likely be steered by their investment bankers toward the year ahead, the source said.

One mitigating factor would be a prospective issuer that might benefit from coming sooner than later, the investor said.

Accounts are on the hunt for such issuers which they might manage to prod into the market during what's left of 2022 by means of reverse inquiry.

Carnival pulls back

Carnival’s senior notes pulled back after a strong rally over the past week propelled them to recent highs.

Carnival’s 5¾% senior notes due 2027 (B3/B) were the most active in the capital structure with the notes falling 1¼ points.

The notes were changing hands in the 74¾ to 75¼ context heading into the market close with the yield 13 5/8%, according to a market source.

There was $35 million in reported volume.

The notes broke above a 75-handle to trade as high as 76½ on Tuesday, the highest level for the notes since late September, a source said.

Carnival’s most recently priced 10 3/8% senior priority notes due 2028 (B2/B+) pulled back from the all-time high set on Tuesday.

The notes were off about ¾ of a point to return to a 103-handle.

They were changing hands in the 103 to 103½ context heading into the market close.

There was $17.5 million in reported volume.

Carnival’s 10½% senior notes due 2030 (B3/B) fell back 1 to 1½ points after also trading up to their highest level since September the previous session.

The 10½% notes returned to an 84-handle on Wednesday and were trading in the 84¼ to 84¾ context heading into the market close with a yield of 13 7/8%.

While the notes spent the majority of Tuesday’s session on an 85-handle, they jumped above 86 in late trading after Carnival announced a convertible notes refinancing deal after the close of equity markets.

Citrix softer

Citrix’s 6½% senior secured notes due 2029 were softer in heavy volume on Wednesday after brushing against an all-time high the previous session.

The 6½% notes were off ½ to 5/8 point with the notes breaking below an 87-handle.

They were changing hands in the 86 7/8 to 87 1/8 context throughout the session with the yield around 9¼%.

There was $35 million in reported volume.

The notes traded as high as 87 7/8 on Tuesday, which marks the highest level for the notes since the $4 billion issue priced at 83.561 on Sept. 20.

Veritas falls

Veritas’ 7½% senior secured notes due 2025 were the largest losers of Wednesday’s session with the notes falling more than 6 points in heavy volume.

The 7½% notes sank to a 74-handle with the notes trading in the 74 to 74½ context heading into the market close, a source said.

The yield was brushing up against 20%.

There was $10.5 million in reported volume.

$496 million Tuesday outflows

High-yield ETFs sustained $496 million of outflows on Tuesday, according to a market source.

Actively managed high-yield funds were positive on the day, posting $88 million of inflows on Tuesday, the source said.

The combined funds are tracking $2.15 billion of net inflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 10 points to close Wednesday at 51.89 with the yield 7.48%.

The index rose 23 points on Tuesday and 26 points on Monday.

The ICE BofAML US High Yield index inched up 1.2 bps with the year-to-date return now negative 11.165%.

The index rose 43.7 basis points on Tuesday and 33.6 bps on Monday.

The CDX High Yield 30 index slipped 9 points to close Wednesday at 100.43.

The index gained 20 bps on Tuesday after falling 23 bps on Monday.

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