Secondary gives back gains; Carnival under pressure; Medline falls; Wynn Macau lower

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 28 – The high-yield new-issue market remained inactive as the post-Thanksgiving week got underway on Monday.

A weak opening in the U.S. stock market turned into a wider selloff by the session's end, as central bankers warned again that the end of interest rate hikes, in the ongoing fight against inflation, was not near at hand, while China, its massive economy sidelined by coronavirus, is seized by political tension related to the pandemic.

With just 18 market sessions remaining until Christmas Eve, the primary market's final run to year-end by no means began hopefully.

The active new-issue calendar continues to host a single deal.

Pegasus Merger Co./Tenneco Inc. is believed to still be in the market with a $1 billion offering of six-year senior secured notes (B2/B-), backing the buyout of Tenneco by Apollo.

There has been very little news on the deal since it was announced at the very beginning of the month.

The buyout was completed on Nov. 17, with the investment banks ponying up their committed financing even though the bonds and the $1.4 billion term loan continue to await syndication.

With the bond deal struggling, bond investors had been on the lookout for covenant concessions.

None, however, have been announced, a trader said on Monday.

Pending such concessions the debt appears to be in limbo, market sources say.

Meanwhile, it was a red day in the secondary space as the market gave back some gains from the previous week.

The cash bond market was off ¼ to ½ point as protests in China, contagion in the crypto world and end-of-month cleanup pressured the market.

While the market was soft on Monday, volume remained light with large liquid issues dominating the tape.

Carnival Corp.’s junk bonds were again the market laggards with the notes down 1 to 3 points in heavy volume.

Medline Industries’ junk bonds gave back some gains after a strong post-earnings uptrend with the notes falling 1½ to 2 points in active trading.

Wynn Macau Ltd.’s junk bonds were among the largest gainers of Monday’s session with the notes jumping 4 to 6 points in active trading after license renewals alleviated a key risk weighing on the company’s capital structure.

Carnival down

Carnival’s high-beta junk bonds were under pressure on Monday with the notes falling 1 to 3 points on a red day for the market.

Carnival’s most recently priced 10 3/8% senior priority notes due 2028 (B2/B+) were among the most actively traded names in the secondary space.

The notes fell 5/8 point to break below a 103-handle for the first time in almost two weeks.

The notes were changing hands in the 102¾ to 103¼ context heading into the market close, a source said.

There was $22 million in reported volume.

While down on Monday, the $2 billion issue, which priced at 98.465 on Oct. 18, still ranks as one of the best performing deals of 2022.

There was $22 million in reported volume.

The 7 5/8% senior notes due 2026 sank 2 points to close the day at 81 1/8 with the yield 15 1/8%, according to a market source.

There was $12 million in reported volume.

Carnival’s 10½% senior notes due 2030 (B3/B) broke below an 83-handle with the notes closing the day at 82¼, a source said.

Carnival is a high beta name, a source said.

Medline falls

Medline’s strong uptrend came to an abrupt end on Monday with its secured and unsecured notes falling 2 points in heavy volume.

Medline’s 5¼% senior notes due 2029 (Caa1/B-/B-) broke below an 82-handle on Monday after closing the previous week on an 83-handle.

The 5¼% notes were changing hands in the 81¾ to 82¼ context heading into the market close.

There was $12 million in reported volume.

Medline’s 3 7/8% senior secured notes due 2029 (B1/B+/BB-) were also down 2 points after hitting a recent high the previous week.

The 3 7/8% notes were trading in the 84½ to 85 context heading into the market close.

There was $10 million in reported volume.

Medline’s notes have been on a strong uptrend since reporting earnings on Nov. 14.

“Guys probably wanted to lighten up on the name,” a source said.

Macau approves

Wynn Macau’s junk bonds were among the major gainers of Monday’s session despite the unrest in Asia after the company’s gaming licenses were renewed.

The 5 1/8% senior notes due 2029 (B2/B+) jumped 5 points to close the day wrapped around 76 with the yield just shy of 10%.

There was $12 million in reported volume.

The 5 5/8% notes due 2028 jumped 4 points to close the day at 79 with the yield about 10½%.

There was $9 million in reported volume.

The luxury hotel and casino resort’s capital structure surged after Macau approved licenses for the gaming operations in the territory.

The approval alleviated a key concern of investors, which feared Beijing’s regulatory crackdown would make its way to Macau’s gaming operations, a source said.

Fund flows

The dedicated high-yield bond funds saw $303 million of net daily cash inflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $233 million of inflows on the day.

Actively managed high-yield funds saw $70 million of inflows on Friday, the source said.

News of Friday's inflows trails a report that the combined funds saw $2.207 billion of net inflows during the week to the Wednesday, Nov. 23 close, according to Refinitiv Lipper.

That big weekly inflow to the combined funds caps a $13.5 billion stretch of inflows over the past five weeks, the second-largest amount on record for such an interval, according to the market source.

Indexes

The KDP High Yield Daily index was down 7 points to close Monday at 52.08 with the yield now 52.08.

The ICE BofAML US High Yield index fell 23.4 basis points with the year-to-date return now negative 10.859%.

The CDX High Yield 30 index fell 87.5 bps to close Monday at 100.71.

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