Junk: Global Aircraft needs more time; Venture better; cruisers hit headwinds, NCL at new low

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 20 – The primary market idled on Friday, with one deal on the active forward calendar that had been on a timeline to price ahead of the weekend.

Global Aircraft Leasing Co., Ltd. and Global Sea Containers II Ltd. remain in the market with a $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-).

However, the offering has experienced pushback with investors asking for more concessions.

Meanwhile, the secondary space had a temporary reprieve from a heavy week as Treasury yields came in after pushing up against historic heights.

The cash bond market remained weak on Friday but was lifted off its lows midsession as buyers returned to Treasuries, a source said.

After brushing up against 5% on Thursday, the 10-year Treasury yield came in 6.2 basis points to close Friday at 4.928%.

While the secondary space had some relief on Friday, it closed the week with heavy losses.

More pain is expected with sources fully expecting the 10-year Treasury yield to broach 5%.

While the market has been heavy, credit spreads have held in well compared to the move in Treasuries, a source said, which may mean future pain is in store.

Venture Global LNG Inc.’s new senior secured notes (B1/BB/BB) were in focus with its newly minted tranches improving after a weak break the previous session.

Cruise line operators remained under pressure on Friday with the sector facing multiple headwinds, including higher fuel costs, reduced demand and high refinancing costs, sources said.

NCL Corp. Ltd.’s recently priced 8 1/8% senior secured notes due 2029 (B1/BB-) continued their downtrend with the notes hitting their lowest level on Friday since pricing.

While there was still an overhang in the market, topical news continued to spark some upward price movement.

Jazz Pharmaceuticals plc’s 4 3/8% senior secured notes due 2029 (Ba2/BB-) were the largest gainers in the secondary space following news the company was considering a sale.

Global Aircraft hangs over

Global Aircraft and Global Sea Containers began shopping a $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-) more than a week ago.

The co-issuers are in the market in order to raise cash to pay off $1.911 billion of Global Aircraft’s 6½% senior PIK toggle notes due September 2024.

A “back-to-the-drawing-board” scenario has arisen, a bond trader said on Friday, noting that investors are looking for additional guarantees and pledges of equity interests, and recounting that Global Aircraft holds 70% of the outstanding ordinary shares of global aircraft leasing company Avolon Holdings Ltd.

Global Aircraft made three PIK payments on its 6½% senior PIK toggle notes due 2024, during the height of the Covid shutdown, and investors are keen to incentivize the company to make interest payments on the new notes in cash, sources say.

The issuers addressed that concern in the new deal’s structure, with a novel 200 bps PIK step-up (the customary PIK step-up has been 75 bps).

However, investors want additional guarantees, sources say.

The early price talk recently widened, specifying an 11½% cash coupon and a 13½% PIK coupon, replacing earlier guidance that had a cash coupon coming in the 11% area, with the 200 bps PIK step-up.

Apart from that work in progress visibility on new issue activity in the week ahead was limited, on Friday.

Risk-free bond rates that have been gapping higher – a trader sees 5%-yielding 10-year Treasuries as a foregone conclusion – make it challenging to price a new junk bond issue with confidence, sources say.

Venture Global improves

Venture Global’s new notes improved in heavy volume on Friday after a weak break the previous session.

The LNG producer’s 9½% senior secured notes due 2029 were up ¼ point early in the session to hover around par.

The notes continued to improve as the session progressed and were changing hands in the par 1/8 to par 3/8 context heading into the market close, a source said.

There was $84 million in reported volume.

Venture Global’s longer-duration 9 7/8% senior secured notes due 2032 underperformed the shorter-duration counterpart.

The 9 7/8% notes added ½ to ¾ point to close the day wrapped around their discounted issue price.

The notes were trading in the 98 7/8 to 99¼ context headed into the market close, according to a market source.

There was $71 million in reported volume.

The notes closed the previous session on a 98-handle.

Venture Global priced a $2.5 billion tranche of the 9½% notes at par and a $1.5 billion tranche of the 9 7/8% notes at 99.214 to yield 10% on Thursday.

The 9½% notes priced at the wide end of the 9¼% to 9½% price talk. Early guidance was 8¾% to 9%.

The 9 7/8% notes priced at the wide end of the 9¾% to 10% yield talk. Early guidance was 9¼% to 9½%.

Both tranches had a weak break and closed Thursday below their issue prices.

NCL sinks to new low

NCL Corp.’s 8 1/8% senior secured notes due 2029 touched a new low on Friday with the sector under pressure as it faces a variety of headwinds.

The 8 1/8% notes were off ¼ point in heavy volume.

They continued to trade on a 97-handle and closed the day in the 97 1/8 to 97 3/8 context, a source said.

The yield rose to 8¾%.

There was $14 million in reported volume.

While the notes have been underwater since breaking for trade, Friday’s level marked the lowest for the notes since the $790 million issue priced at par on Oct. 11.

The notes’ downtrend continued with the travel sector, in general, under pressure since United Airlines’ profit warning in earnings earlier in the week.

Cruise line operators have moved lower with Carnival Corp.’s senior notes leading the way after the company announced reduced pricing for 2024 and 2025.

The sector is facing myriad headwinds, sources say, with high fuel costs, reduced consumer demand and refinancing risks chief among them.

Jazz bounces

Jazz Pharmaceutical’s 4 3/8% senior secured notes due 2029 were the major gainers of Friday’s session after news broke the company may be exploring a potential sale.

The 4 3/8% notes jumped 2 points to close the day wrapped around 87½, a source said.

The yield was 7¼%.

There was $12 million in reported volume.

The notes jumped in active trade following news reports that the company is exploring strategic options and is in talks with advisers about a potential sale.

Options also include a spinoff or divestment of business units.

Fund flows

The dedicated high-yield bond funds sustained $632 million of net daily cash outflows on Thursday, the most recent session for which data was available at press time.

High-yield ETFs had big outflows of $603 million on the day.

Actively managed high-yield funds sustained $29 million of outflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds had $1.9 billion of net outflows in the week to the Wednesday, Oct. 18 close.

It represented the fourth consecutive big weekly outflow from the junk funds, totaling $9.4 billion, the largest outflows for such an interval since August 2014, the market source said.

Over the past five weeks the high-yield ETFs have had $7 billion of outflows, or 11% of assets under management.

Year-to-date the combined funds have sustained $19.6 billion of net outflows, according to the market source.

Indexes

The KDP High Yield Daily index was down 10 bps to close Friday at 48.29 with the yield 8.38%.

The index fell 15 bps on Thursday, 17 bps on Wednesday, 18 bps on Tuesday and 14 bps on Monday.

The index was off 74 bps on the week.

The ICE BofAML US High Yield index was down 20.6 bps with the year-to-date return now 3.948%.

The index was down 21.9 bps on Thursday, 36.9 bps on Wednesday, 38.2 bps on Tuesday, and 12.2 bps on Monday.

The index posted a cumulative loss of 129.8 bps on the week.

The CDX High Yield 30 index was down 8 bps to close Friday at 99.

The index was down 55 bps on Thursday, 62 bps on Wednesday, 14 bps on Tuesday and 32 bps on Monday.

The index posted a cumulative loss of 171 bps on the week.

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