Junk primary sidelined, but open; Odeon cracks, AMC falls; Newell scrapes bottom

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 20 – The primary market remained sidelined on Thursday, with virtually no one forecasting a regeneration of vigorous high-yield new issue activity in the near term.

Meanwhile, it was a weak day in the secondary space as Treasury yields continued their upward march with the 10-year Treasury yield hitting its highest level in 14 years.

The market was soft amid the rise in rates with rate-sensitive and CCC names feeling the brunt of the pressure.

However, there was no panic with the cash bond market off 1/8 to ¼ point and still retaining some gains on the week, a source said.

Carnival Corp.’s recently priced 10 3/8% senior priority notes due 2028 (B2/B+) were nominally improved on Thursday with the notes inching higher above their discounted issue price.

However, Odeon Finco plc’s (AMC Entertainment Holdings, Inc.) 12¾% senior secured notes due 2027 (B3/B) cracked on Thursday with the notes now trading 5 points below their deeply discounted issue price less than one week after breaking for trade.

AMC’s senior notes were among the largest losers of Thursday’s session with the struggling movie chain operator’s capital structure falling 3 to 5 points in active trading.

Newell Brands Inc.’s 6 5/8% senior notes due 2029 (Ba1/BBB-/BB+) continued their downward trend with the notes falling to their lowest level since pricing.

Meanwhile, high-yield mutual and exchange-traded funds continued to see outflows although the pace of the exodus tempered.

Funds saw $144 million leave the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Primary

Notwithstanding a dearth of new issue activity – only $10.5 billion of junk-rated, dollar-denominated issuance since Sept. 1 – the primary market is most definitely open, insist sources on both the buyside and the sellside.

It's just that the friendly rates of 2021 are now a vanishing speck in the rearview mirror, they add.

A vivid illustration – one in keeping with that automotive metaphor – can be constructed by comparing two issues of unsecured green notes from Ford Motor Co., which came just eight months apart.

Ford priced $2.5 billion of 3¼% senior green notes due February 2032 at par on Nov. 8, 2021.

Eight months later, on Aug. 16, Ford priced $1.75 billion of 6.1% senior green notes due August 2032 – just six months more of duration risk – also at par.

A widely known, double-B-rated, on-the-run issuer that knows its way around the fixed-income markets saw its rate rise by 285 basis points in the course of eight months.

Those eight months encompassed a vast and still unfolding supply chain crisis, constrictions in the labor force, a high-profile invasion of a sovereign nation by a global super power that has exerted a phenomenally corrosive force on the global economy, and of course a pandemic which continues to periodically bob up above the surface of the news headlines, in addition to rampant inflation, sources recount.

In the face of all that, the high-yield primary market remains open, they say.

It not only remains open, but eligible issuers – ones with double-B or high single-B ratings – that are reconciled to the present cost of raising capital in the junk bond market are still seeing very good executions, a debt capital markets banker asserted on Thursday.

In support of that assertion that banker pointed to two recent deals, one from a first-time issuer, that played to warm receptions from investors.

On Oct. 11 RXO, Inc. priced an upsized $355 million issue (from $350 million) of 7½% split-rated senior notes due November 2027 (Baa3/BB+) at 98.962 to yield 7¾%.

The deal, backing XPO Logistics, Inc.'s spinoff of its transportation brokerage platform, came at the tight end of talk, and was heard to be have played to $800 million of demand.

On the day that RXO – the first-time issuer – went away with a 7¾% print, the ICE BofA US High Yield Index yield to worst was 7.73%, the banker noted.

Last Tuesday Carnival Corp. priced an upsized $2.03 billion issue (from $1.25 billion) of 10 3/8% senior priority notes due May 2028 (B2/B+) at 98.465 to yield 10¾%, the banker recounted.

“They got a brilliant execution that enabled them to upsize that deal by $750 million,” the banker asserted.

For lower quality issuers, with low-single-B or triple-C ratings, the high-yield primary poses much greater challenges, the source conceded.

Issuers answering that description, facing maturities in the near or intermediate term, might, for example, find themselves attempting to work things out on the liabilities management desk rather than the high-yield syndicate desk.

Carnival inches higher

Carnival’s new 10 3/8% senior priority notes due 2028 (B2/B+) inched higher in heavy volume despite a weak day for the market.

While the notes regained a 99-handle amid the market strength early in the session, they were unable to maintain that level as selling pressure increased.

However, the 10 3/8% notes were able to retain some of their gains and closed up ¼ point with the notes trading in the 98¾ to 99¼ context.

There was $40 million in reported volume.

The notes have held above their 98.465 issue price since hitting the aftermarket despite the weak tape.

The hefty yield and $8.2 billion worth of cruise ships serving as collateral have made the notes attractive, a source said.

Odeon cracks, AMC for sale

AMC subsidiary Odeon’s recently priced 12¾% senior secured notes due 2027 cracked on Thursday.

The 12¾% notes opened the day on a 90-handle; however, they quickly tumbled to an 86-handle.

The notes pared some of their losses heading into the close with the notes ending the day in the 86¾ to 87 context.

The notes are now trading more than 5 points below their deeply discounted issue price less than one week after pricing.

Odeon priced a $400 million issue of the 12¾% notes at 92 to yield 15.066% on Oct. 14.

AMC’s senior notes saw heavy selling pressure on Thursday with the notes off 3 to 6 points.

The 7½% first-lien notes due 2029 (Caa1/B-) fell 3 points to a 66-handle with the notes changing hands in the 66 to 66½ context heading into the market close with a yield of about 16 1/8%.

AMC’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) continued their downward spiral with the notes also falling 3 points to 51 heading into the market close with the yield cracking above 34%.

Both tranches saw $17 million in reported volume.

Newell’s new low

Newell Brands’ split-rated 6 5/8% senior notes due 2029 continued their downward trend amid the rise in rates with the notes hitting their lowest level on Thursday since pricing.

The 6 5/8% notes were down another 3/8 to ½ point with the notes falling to a 96-handle.

They were trading in the 96 3/8 to 96 5/8 context heading into the market close with the yield 7¼%, according to a market source.

There was $20 million in reported volume.

Newell priced a $500 million tranche of the 6 5/8% notes at par on Sept. 9.

The notes initially put in a strong aftermarket performance and traded as high as 102.

However, they were dragged below par as the market upwardly revised its Federal Funds target rate projections.

The notes have fallen 2 points over the past two sessions as Treasury yields hit new heights.

Indexes

The KDP High Yield Daily index fell 69 points to close Thursday at 50.59 with the yield now 8.07%.

The index was down 32 points on Wednesday after rising 15 points on Tuesday and 28 points on Monday.

The ICE BofAML US High Yield index shaved off 9.8 basis points with the year-to-date return now 13.954%.

The index was down 49 bps on Wednesday after rising 44.9 bps on Tuesday and 50.9 bps on Monday.

The CDX High Yield 30 index fell 47 bps to close Thursday at 97.39.

The index was down 45 bps on Wednesday after gaining 75 bps on Tuesday and 121 bps on Monday.

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