Fortress downsizes; cruise lines sink on refinancing concerns; Bed Bath & Beyond tanks in HY

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 29 – The dry spell in the high-yield bond primary market broke on Wednesday as Fortress Transportation and Infrastructure Investors LLC cleared the market with a downsized offer.

Meanwhile, the secondary space was a mixed bag on Wednesday with some credits stabilizing while others plunged after the market resumed its downtrend on Tuesday.

While the CDX index was only off ¼ point, the ICE BofAML US High Yield index plunged almost 1 point to its lowest close of the year.

While selling pressure was not evenly felt across the market, topical news sparked a fire sale in certain credits and sectors.

Bed Bath & Beyond Inc.’s senior notes (B3/B+) sank double digits after another disastrous quarter and the ouster of the company’s chief executive officer.

The selloff in Carnival Corp.’s senior notes intensified on Wednesday after a Morgan Stanley analyst released a report illustrating a scenario that would drive the company’s stock to $0.

The report, which highlighted the problem the company will face refinancing its debt, drove down other cruise line operators.

Royal Caribbean Cruises Ltd.’s senior notes fell 1½ to 2½ points with the 5 3/8% senior notes due 2027 (B2/B) claiming the title of worst performing deal of the year.

Spirit AeroSystems, Inc.’s 3.95% senior notes due 2023 (Caa1/CCC+) outperformed the market with buyers lifting the notes 2 points.

Fortress clears

Fortress Transportation and Infrastructure Investors priced a downsized $450 million issue (from $500 million) of FTAI Escrow Holdings, LLC 10½% senior secured notes due June 2027 at 94.585 to yield 12%, with deal terms circulating the market on Wednesday evening.

The coupon came wide to the 10¼% coupon talk. The yield printed at the wide end of the 11¾% to 12% yield talk.

The order book was heard to be around deal-size on Wednesday morning, dominated by larger orders from accounts expected to put the bonds away in portfolios, a sellside source said.

The Fortress deal was the first to clear the market in nearly two weeks.

The most recent previous deal came on June 16 when Entegris Inc. priced $895 million of 5.95% senior notes due June 2030.

The Wednesday pricing of the Fortress Infrastructure deal emptied the dollar-denominated active forward calendar, with visibility on future primary market business clouded by ongoing capital markets volatility, and risk aversion on the part of investors, sources say.

Bed Bath tanks

Bed Bath & Beyond’s senior notes plunged in active trading on Wednesday after the retailer released another disastrous earnings report.

The 5.165% notes sank 9½ points to close the day at 26, according to a market source.

The yield on the notes was now 20½%.

There was $14 million in reported volume.

While volume was light, the 3.749% senior notes sank 11 points to 60 with the yield now 31¼%, a source said.

The already struggling notes were pushed further into distressed territory after a large earnings miss, a source said.

The retailer saw sales crash 25% and its adjusted EBITDA swung to negative $224 million from $86 million year over year, according to a company news release.

Bed Bath & Beyond announced the departure of chief executive officer Mark Tritton following the earnings release.

Cruise lines sink

Cruise line operators were under pressure after a Morgan Stanley analyst released a report outlining a scenario that could drive Carnival’s stock to $0.

Selling in Carnival’s senior notes intensified following the report with the notes again setting new lows.

Carnival’s 6% senior notes due 2029 were the most active in the capital structure.

The 6% notes fell 1 3/8 points to close the day wrapped around 72, a source said.

The yield on the notes pushed out to 12.142%.

There was $26 million in reported volume.

Carnival’s 4% first priority senior secured notes due 2028 (Ba2/BB-) fell 1½ points to 81¾ with the yield 7.827%.

There was $17 million in reported volume.

Carnival’s 10½% notes due 2030 sank 3 points to an 84-handle and closed the day at 84½ with a yield of 13.769%.

There was $13 million in reported volume.

Carnival’s capital structure has seen heavy selling since Monday.

However, pressure on the notes intensified after a Morgan Stanley analyst questioned the ability of the company to withstand a global economic downturn.

The ability of the company to refinance its debt at a sustainable cost was also questioned.

Carnival has raised $16 billion from the high-yield market since 2020.

Spirit AeroSystems lifted

Spirit AeroSystems’ 3.95% senior notes due 2023 were the largest gainers of Wednesday’s session with buyers lifting the notes 2 points.

The 3.95% notes rose to a 94-handle.

They were changing hands in the 94 to 94½ context throughout the session, a source said.

While on the lower end of the credit spectrum, the notes are less than one year away from their maturity date and are offering a yield of about 10 1/8%, a source said.

$557 million Tuesday outflows

The dedicated high-yield bond funds sustained $557 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $480 million of outflows on the day.

Actively managed-high yield funds sustained $77 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 43 points to close Wednesday at 54.47 with the yield now 7.71%.

The index was down 30 points on Tuesday after adding 4 points on Monday.

The ICE BofAML US High Yield index plunged 87.65 basis points with the year-to-date return now 13.6849%.

The index sank 50.84 bps on Tuesday and rose 5.76 bps on Monday.

The CDX High Yield 30 index was down 30 bps to close the day at 97.22.

The index plunged 125 bps on Tuesday and shaved off 13 bps on Monday.

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