Junk volatile; Royal Caribbean recent issues mixed; Ford hits new low; Spectrum falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 27 – The preponderance of the week's high-yield primary market news, thus far, comes from Europe.

The junk bond secondary space remained volatile on Tuesday with the cash bond market up ¼ point at the open. However, the early morning rally was once again short-lived with the market down ¼ to 3/8 point by the close.

The secondary space stands poised to close the third quarter at the lows of the year, a source said.

Royal Caribbean Cruises Ltd.’s recently priced tranches were nominally improved alongside the broader market although they closed well off the highs of the day.

However, Royal Caribbean’s 11 5/8% senior notes due 2027 remained under pressure with the notes hitting a new low during Tuesday’s session.

While nominally improved early in the session, Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) later continued their downtrend with the notes setting a fresh low by the market close.

Outside of recent issues, Spectrum Brands Inc.’s 3 7/8% senior notes due 2031 (B2/B) were the laggards of Tuesday’s session with the notes down 6 points after S&P Global Ratings revised its view to negative after placing the company on positive watch earlier in the month.

Picking up

The active new issue calendar of U.S. and European offers – nearly empty since late summer – lately has a modicum of substance.

From Europe, on Tuesday morning Switzerland's Verisure Holding AB circulated initial price talk on its €500 million offering of senior secured notes due 2027 (B1/B) at 9¼% to 9½%.

The roadshow is scheduled to wrap up Thursday, and the deal is set to price before the end of the week (see related story in this issue).

Elsewhere in the European market, on Monday, Villa Dutch Bidco kicked off a €425 million offering of seven-year senior secured notes (B2/B) backing Bain Capital's acquisition of a majority stake in Belgium-based House of HR.

Turning to the dollar-denominated calendar the market awaits news on the Connect Holding II LLC $1.865 billion offer of seven-year senior secured notes (B2/B/B+) backing the carve-out acquisition of Lumen Technologies’ fixed-line assets by Apollo Global Management.

The broadband and telecom services provider will be rebranded as Brightspeed.

Initial talk had the Brightspeed deal coming with an 8% coupon to yield 10%, with pricing expected late this week. Some market-watchers have been looking for that talk to push higher, however.

Away from the universe of Yankee issuers Chile-based Latam Airlines Group SA is marketing a $1.5 billion two-part offering of senior secured notes related to its exit from Chapter 11 bankruptcy during the past summer.

The deal, which is slated to price next week, features five-year notes whispered in the low-13% area, and seven-year notes whispered in the low-to-mid 13% area.

The credit's emerging markets provenance notwithstanding, U.S. high yield accounts are expected to participate in the deal because many of them participated in the Latam Airlines debtor-in-possession (DIP) financing, sources say.

Royal Caribbean diverges

In the secondary market, Royal Caribbean’s most recently priced tranches improved in heavy volume on Tuesday, although the notes closed well off the high of the day.

The cruise line operator’s 8¼% senior secured notes due 2029 (Ba3/BB-) jumped ¾ point early in the session to reclaim a 99-handle.

The notes were changing hands in the 99 to 99½ context early in the session although they gave back their gains as selling pressure set in midway through the session.

The notes were up ¼ point and trading in the 98½ to 99 context heading into the market close, a source said.

Royal Caribbean’s 9¼% senior priority guaranteed notes due 2029 (B3/B+) also rallied up to a 99-handle early in the session with the notes trading in the 99¼ to 99¾ context.

However, the notes also lost steam alongside the broader market and closed the day up ¼ point in the 99 to 99¼ context.

Royal Caribbean’s recent tranches have struggled in the aftermarket since pricing at par on Sept. 22.

While the deal played to heavy demand during bookbuild, general market conditions and recession fears drove them lower.

While Royal Caribbean’s freshest paper improved, the cruise line operator’s 11 5/8% senior notes due 2027 hit a fresh low.

The 11 5/8% notes traded below a 96-handle during intraday activity although the notes stood poised to close the day at 96¼.

Tuesday marked the lowest level for the notes since the $1.25 billion issue priced at par on Aug. 15.

The notes were on a 101-handle as recently as Sept. 21. However, they fell hard amid the market rout sparked by the Federal Reserve and Royal Caribbean’s latest offering.

Ford’s new low

After nominal improvement early in the session, Ford’s 6.1% senior green notes due 2032 set a new low on Tuesday.

The notes launched the day on an 89-handle and were marked at 89 bid, 89¾ offered early in the session.

However, they ended the day on an 88-handle with the notes trading in the 88¼ to 88¾ context.

The notes were yielding 7 7/8%.

The notes have been on a steady downtrend since last Wednesday with BB credits hard hit on rising rates.

The notes were largely trading in line with the BB index, a source said.

Spectrum lags

Spectrum Brands’ 3 7/8% senior notes due 2031 were among the largest losers of Tuesday’s session with the notes off 6 points after S&P revised its view to negative after placing it on positive watch earlier in the month.

The 3 7/8% notes were wrapped around 69 heading into the market close with the yield 9¼%, according to a market source.

The notes previously traded at 74.

The notes fell after S&P affirmed its ratings on Spectrum Brands but altered its view on the company to negative, citing weak macro conditions and uncertainty surrounding the sale of its hardware unit. (See related article in this issue.)

S&P put Spectrum Brands on positive watch and Moody’s Investors Service eyed it for an upgrade earlier in the month due to the sale of its hardware unit to ASSA Abloy for $4.3 billion.

However, the Department of Justice is suing to block the sale on antitrust concerns.

Fund flows

Actively managed high-yield bond funds sustained $147 million of daily cash outflows on Monday, according to a market source.

High-yield ETFs were essentially flat – although slightly positive – on the day, posting $4 million of inflows on Monday, the source said.

The combined funds are tracking $1.83 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index was down 23 points to close Tuesday at 51.85 with the yield now 8.23%.

The index fell 45 points on Monday.

The ICE BofAML US High Yield index was down 36.6 basis points with the year-to-date return now negative 14.575%.

The index fell 75 bps on Monday.

The CDX High Yield 30 index plunged 162 bps to close Tuesday at 95.2.

The index dropped 69 bps on Monday.

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