Valvoline jumps on asset sale; Avaya rebounds; Royal Caribbean up on refinancing

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 1 – The domestic high-yield primary market remained dormant on Monday. However, a surge of activity in high-grade dealmaking may be a sign of a broader reopening of credit markets, a source said.

Meanwhile, it was a sideways day in the secondary space on Monday with the cash bond market largely unchanged after logging another post-Fed rally that lifted the market more than 1¼ points over the past three sessions.

Trading activity remained thin amid historically low new deal volumes with topical and earnings-related news the major drivers of trading activity in the absence of new paper.

Valvoline Inc.’s senior notes (Ba3/BB-) were among the major gainers of Monday’s session following news Saudi Aramco will buy the company’s petroleum unit.

Royal Caribbean Cruises Ltd.’s senior notes were also boosted following news the cruise line operator had launched a $900 million convertible notes offering to refinance its convertible notes maturing in 2023.

Avaya Holdings Corp.’s 6 1/8% senior notes due 2028 (B2/B+) were bouncing off their lows after plummeting double digits the previous session on bankruptcy concerns.

A sign

The high-yield primary market failed to generate news during the first session in August.

However, it was busy in the high-grade bond market.

A high-yield sellside source took note of the fact that Apple Inc. showed up with a $5.5 billion four-part offering and remarked that the Cupertino, Calif.-based tech giant is perceived throughout the bond market to have impeccable timing, when it comes to bringing new issues.

It could signal a broader reopening of the credit markets, the sellsider said.

Valvoline’s sale

Valvoline’s senior notes were among the major gainers of Monday’s session following news Saudi Aramco will purchase the company’s petroleum business for $2.65 billion.

The 4¼% senior notes due 2030 rose more than 6 points in active trading.

The notes were wrapped around 96¾ early in the session and continued to climb as the session progressed.

They closed the day in the 97¾ to 98 context, a source said.

There was $12 million in reported volume.

The manufacturer and distributor of automotive oil and lubricants’ 3 5/8% senior notes due 2031 rose 1½ points to close the day at 84½.

The company’s capital structure was on the rise following news it was selling its petroleum business to focus on its retail services.

Proceeds from the sale will be used, in part, to reduce debt.

Royal Caribbean’s refinancing

Royal Caribbean’s senior notes were on the rise in active trading following the launch of a new capital raise to refinance its soon-to-mature convertible debt.

The cruise line operator’s 5½% senior notes due 2028 were the most active of the capital structure.

The notes gained ½ point to close Monday wrapped around 76.

There was $12 million in reported volume.

Royal Caribbean’s 5½% senior notes due 2026 also gained ½ point with the notes returning to an 80-handle.

They were changing hands in the 80 to 80½ context on Monday.

The cruise line operator’s senior notes were on the rise after it launched a $900 million capital raise to refinance its 2.875% convertible notes due Nov. 15, 2023 and 4.25% convertible notes due June 15, 2023, which have $575 million and $1.15 billion outstanding respectively.

The cruise line’s latest offering was in the market with price talk for a coupon of 5.75% to 6.25%.

The ability of weaker credits to sustainably refinance their large debt burdens has been a growing concern in the secondary space.

Refinancing concerns have been partially responsible for the weakness in the capital structures of cruise line operators, sources have said.

Avaya trades off lows

Avaya’s 6 1/8% senior notes due 2028 were bouncing off their lows on Monday after plummeting during Friday’s session.

The 6 1/8% notes gained 3½ points to close Monday wrapped around 50 with the yield 21%.

There was $6 million in reported volume.

The notes plummeted more than 20 points to close the previous session at an all-time low of 46½.

Avaya’s capital structure tanked last Friday after the technology company released preliminary earnings results that reignited bankruptcy fears.

The company downwardly revised its earnings forecast with adjusted EBITDA expected to be $50 million to $55 million from previous guidance of $140 million to $150 million.

Avaya is slated to report earnings on Aug. 9.

$1.11 billion Friday inflows

The dedicated high-yield bond funds saw strong net inflows of $1.11 billion on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $645 million of inflows on the day.

High-yield ETFs saw $465 million of inflows on Friday, the source said.

Last week the combined funds reported $4.83 billion of net inflows for the week to the Wednesday, July 27 close, the biggest weekly inflows since June 2020, according to the market source.

Indexes

The KDP High Yield Daily index gained 8 points to close Monday at 57.22 with the yield now 6.5%.

The index posted a cumulative gain of 46 points on the week last week.

The ICE BofAML US High Yield index rose 22.2 basis points with the year-to-date return now 8.652%.

The index posted a cumulative gain of 130 bps on the week last week.

The CDX High Yield 30 index fell 27 bps to close Monday at 100.88.

The index posted a cumulative gain of 115 bps on the week last week.

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