Carnival under water; Ford, Catalent, Prestige Brands at a premium; funds lose $228 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 11 – The domestic high-yield primary market was quiet on Thursday with just one deal pricing.

Spanish Broadcasting System Inc. priced a $310 million offering of five-year senior secured notes (expected B3/confirmed B-) wide of initial guidance.

Just one dollar-denominated deal remains on the forward calendar for Friday’s business – Adtalem Global Education Inc.’s $650 million offering of seven-year senior secured notes (B1/BB-).

Meanwhile, the secondary space was largely flat on Thursday with new paper continuing to dominate the tape.

Carnival Corp.’s new 5¾% senior notes due 2027 (B2/B+) were in focus with the notes volatile as real money and hedge funds battled over the notes.

Prestige Brands Inc.’s 3¾% senior notes due 2031 (B2/B+), Catalent Inc.’s 3 1/8% senior notes due 2029 (B1/BB-), and Ford Motor Credit Co. LLC’s 2.9% senior notes due 2028 (Ba2/BB+) were all putting in solid performances in the aftermarket with the notes trading with a premium.

Centene Corp.’s split-rated 2½% senior notes due 2031 (Ba1/BBB-/BB+) were also putting in a solid performance in the aftermarket, despite the tight pricing of the notes.

Meanwhile, fund flows returned to the red in the week through Wednesday’s close with high-yield mutual and exchange-traded funds seeing $228 million leave the space, according to the Refinitiv Lipper Fund Flow report.

The outflow comes after funds reported their first positive inflow of 2021 the previous week with $1.337 billion entering the space.

Thursday’s primary

A quiet Thursday had just one dollar-denominated deal set to price in the new issue market

Spanish Broadcasting System talked its $310 million offering of five-year senior secured notes (expected B3/confirmed B-) to yield 9¼% to 9½%, and planned to price it later in the session.

The notes priced wide of that talk at par to yield 9¾%.

RBC Capital Markets LLC will bill and deliver.

Friday

One dollar-denominated deal is on deck for Friday.

Adtalem Global Education expects to price a $650 million offering of seven-year senior secured notes (B1/BB-), which were talked Thursday afternoon to yield 5½%.

Also, on the heels of the biggest all-sterling denominated issuance in history of the high-yield market, Asda's massively oversubscribed £2.75 billion two-part deal backing the buyout of the company, Iceland Foods Ltd. is in the market with a £250 million offering of senior secured notes due May 2028 (B2/B/B+) talked to yield in the 4½% area, and set to price Friday.

The extremely busy new issue market could slow down somewhat as a considerable number of issuers head into earnings blackouts, where they must report fresh financial numbers before issuing more bonds, an investment banker said on Thursday.

Private companies and issuers in the market to fund mergers and acquisitions won't be affected, so the primary market should remain at least active, the source added.

Carnival under water

Carnival’s newly priced 5¾% senior notes due 2027 were volatile in active trading on Thursday as hedge funds and real money accounts battled over the notes’ trading level.

The 5¾% notes traded as high as par ¼ during Thursday’s session. However, they stood poised to close the day at 99½ bid, 99¾ offered.

There were real money accounts involved in the heavily oversubscribed issue, a source said.

However, there were also hedge accounts that were leaning into the notes, which, sources suspect, they shorted.

“It’s been a real tug-of-war,” a source said.

The notes dominated activity in the secondary space with $228 million in reported volume.

Carnival priced an upsized $3.5 billion, from $2.5 billion, issue of the 5¾% notes in a Wednesday drive-by.

Pricing came in the middle of yield talk in the 5¾% area.

The deal was heard to be playing to around $7.7 billion of orders.

At a premium

The onslaught of paper from Wednesday’s session was putting in a strong performance in the aftermarket with most tranches trading with decent premiums.

Prestige Brands’ 3¾% senior notes due 2031 continued to trade at par ½ bid, par 7/8 offered – a level reached after breaking for trade on Wednesday.

While unchanged, the notes were active with $51 million in reported volume.

Prestige priced an upsized $600 million, from $500 million, issue of the 3¾% notes at par.

Pricing came at the tight end of yield talk in the 3 7/8% area.

Catalent’s 3 1/8% senior notes due 2029 gained in active trading. The notes traded up to 101 1/8 heading into the market close, according to a market source.

Catalent priced an upsized $550 million, from $475 million, issue of the 3 1/8% at par on Wednesday.

The yield printed at the tight end of yield talk in the 3¼% area.

The deal was heard to be eight-times oversubscribed.

Centene’s 2½% senior notes due 2031 were also trading with a premium despite their tight pricing.

The notes were marked at par ¼ bid, par 5/8 offered heading into the close, according to a market source.

There was more than $82 million of the bonds on the tape.

Centene priced a $2.2 billion issue of the 2½% notes at par on Wednesday.

Pricing came on top of yield talk.

Ford returns

Ford Motor’s 2.9% senior notes due 2028 were also seen at a healthy premium in the aftermarket.

The 2.9% notes were marked at par 3/8 bid, par ¾ offered heading into the market close.

“They did well,” a source said. “People like the credit,” a source said.

Ford has become a frequent flyer in the high-yield market.

The financial services arm of Ford Motor priced a $1.5 billion tranche of 3 3/8% senior notes due 2025 and a $1 billion tranche of 4% senior notes due 2030 in November 2020.

The company returned to the market in December 2020 to price a $600 million add-on to the 3 3/8% notes and a $650 million add-on to the 4% notes.

ETFs: $1.33 billion outflows

High-yield ETFS sustained a notable $1.33 billion of outflows on Wednesday, the most recent session for which data was available at press time.

That big outflow was offset somewhat by the $200 million of inflows seen by the actively managed high yield funds on Wednesday, the source said.

However, the ETF outflows helped to send the weekly cash flows of the combined funds into the red.

Indexes mixed

Indexes were mixed on Thursday.

The KDP High Yield Daily index shaved off 2 points to close the day at 69.84 with the yield now 3.75%.

The index rose 6 points on Wednesday, 5 points on Tuesday and 7 points on Monday.

The ICE BofAML US High Yield index rose 5.2 bps with the year-to-date return now 1.406%.

The index gained 6.3 bps on Wednesday, 6.9 bps on Tuesday and 13.3 bps on Monday.

The CDX High Yield 30 index shaved off 4 points to close Thursday at 109.47. The index gained 10 points on Wednesday, fell 19 points on Tuesday and was up 11 points on Monday.

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