Junk sell-off intensifies; Royal Caribbean new, recent issues sink; Citrix moves lower

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 23 – The dollar-denominated primary market sat idle on Friday with global capital markets engulfed in volatility and price discovery underway in the speculative-grade bond market, sources said.

Connect Holding II LLC is slated to price its $1.865 billion offering of seven-year senior secured notes (B2/B/B+) early next week.

However, talk has widened, in part, due to the Citrix Systems Inc./Tibco Software Inc. $4 billion issue of 6½% senior secured notes due March 2029 (B2/B).

While Citrix’s 6½% notes initially performed well in the aftermarket, the notes cracked under heavy selling pressure on Friday with the deeply discounted notes falling below their issue price.

Credit spreads blew out on Friday with the market once again pricing in a recession, a source said.

The cash bond market fell 1 point on the day with the ICE BofAML US High Yield index’s returns again on a negative 13% handle.

The CDX index returned to a 97-handle.

Royal Caribbean Cruises Ltd.’s recently priced tranches were in focus with the notes falling well below their issue price.

Royal Caribbean’s recently priced 11 5/8% senior notes due 2027 (B3/B) sank to a new low in heavy volume after reclaiming a 101-handle two sessions ago.

Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) were hurting on Friday with the notes falling more than 4 points in active trade.

Inetum pulled

The euro junk market turned out news on Friday, but it was negative news.

Granite Bidco SAS/Inetum SA withdrew its €300 million offering of six-year senior secured notes (B2/B), shifting the proceeds to the term loan, according to a London-based debt capital markets banker.

The LBO deal, which initially came sized at up to €350 million, was pulled after yield talk gapped to 10¼% to 10½%, up from early guidance of 9% to 10%.

Upcoming domestic

The week ahead is set to get underway with a single U.S. issuer seeking to raise cash in support of an acquisition.

Connect Holding II LLC is marketing $1.865 billion 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 deal coming with an 8% coupon to yield 10%.

However, market conditions, including a weak secondary market performance by the already steeply discounted Citrix Systems Inc./Tibco Software Inc. $4 billion issue of 6½% senior secured notes due March 2029, which priced at 83.561 during the past week, are pushing Brightspeed talk wider, sources say.

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 during the Oct. 3 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 sinks

Regarding recent issues, Royal Caribbean’s new tranches sank below par in heavy volume on Friday as the sell-off in the secondary space intensified.

The company has priced three series recently, two in a drive-by on Thursday and then another series just over one month ago.

Royal Caribbean’s new 8¼% senior secured notes due 2029 (Ba3/BB-) fell 1¼ points on Friday.

After holding at par at Thursday’s break, the notes broke below a 99-handle during Friday’s session.

The 8¼% notes were changing hands in the 98¾ to 99¼ context heading into the week’s close, a source said.

There was $160 million in reported volume.

The new 9¼% senior priority guaranteed notes due 2029 (B3/B+) held up better under the selling pressure although they also fell to a 99-handle.

The 9¼% notes were changing hands in the 99 to 99½ context heading into the market close.

There was $134 million in reported volume.

Royal Caribbean priced a $1 billion issue of the 8¼% notes and a $1 billion issue of the 9¼% notes at par.

The 8¼% notes priced in the middle of yield talk in the 8¼% area; the 9¼% notes priced in the middle of yield talk in the 9¼% area.

Both tranches were heavily oversubscribed with books building to $5 billion and the deal half done by reverse inquiry, a source said.

However, the 9¼% notes were the preferred tranche due to several of Royal Caribbean's cruise ships, which have been capped in terms of their use as collateral, part of the guarantee for the notes.

The net book value of the cruise ships guaranteeing the notes was $7.2 billion, a source said.

While Royal Caribbean’s newly priced tranches struggled, the cruise line operator’s recently priced 11 5/8% senior notes due 2027 plummeted to a new low.

The 11 5/8% notes were down 2¾ point in heavy volume.

The notes were trading in the 97 to 97½ context heading into the market close, a source said.

The yield was just shy of 12½%.

There was $27 million in reported volume.

The notes reclaimed a 101-handle on Wednesday.

Royal Caribbean priced a $1.25 billion issue of the 11 5/8% notes at par on Aug. 15.

Citrix erases gains

Citrix’s 6½% senior secured notes due 2029 erased gains in the aftermarket with the notes dipping below their deeply discounted issue price on Friday.

The 6½% notes traded as low as 83 early in the session although they were pushed higher and trading in the 83¼ to 83½ context heading into the market close.

The notes continued to see heavy volume with $74 million on the tape during Friday’s session.

The notes traded as high as 85½ after breaking for trade but have steadily come in under heavy market conditions.

Tibco Software priced $4 billion of the 6½% notes at 83.561 to yield 10% on Tuesday with proceeds backing the buyout of Citrix Systems.

Ford cracks

Ford’s 6.1% senior green notes due 2032 cracked on Friday with the notes plummeting more than 4 points in a single session.

The 6.1% notes fell to a 90-handle after consolidating on a 94-handle for the past few sessions.

The notes were changing hands in the 90¼ to 90¾ context heading into the market close, a source said.

The yield was just shy of 7½%.

There was $14 million in reported volume.

In addition to being pressured alongside the BB index by rising rates, Ford’s warning regarding earnings from earlier in the week was beginning to take its toll, a source said.

Fund flows

High-yield ETFs sustained $1.01 billion of daily cash outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds, meanwhile, had $45 million of inflows on the day.

News of Thursday's daily flows followed a Thursday afternoon report that the combined funds sustained $1.663 billion of net outflows for the week to the Wednesday, Sept. 21 close, according to fund tracker Refinitiv Lipper.

Indexes

The KDP High Yield Daily index fell 51 points to close Friday at 52.53 with the yield 7.92%.

The index was down 46 points on Thursday, rose 4 points on Wednesday, fell 6 points on Tuesday and gained 5 points on Monday.

The index posted a cumulative loss of 94 points on the week.

The ICE BofAML US High Yield index plunged 87.1 bps with the year-to-date return now negative 13.459%.

The index sank 74 bps on Thursday, rose 11.1 bps on Wednesday, fell 21.1 bps on Tuesday and gained 24.1 bps on Monday.

The index posted a cumulative loss of 217.4 bps on the week.

The CDX High Yield 30 index dropped 61 bps to close Friday at 97.51.

The index fell 39 bps on Thursday, 41 bps on Wednesday and 55 bps on Tuesday after rising 54 bps on Monday.

The index posted a cumulative loss of 142 bps on the week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.