Royal Caribbean drives by, recent issue falls; Citrix weakens; HY funds out $1.66 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 22 – Royal Caribbean Cruises Ltd. sold a two-part transaction in the Thursday junk bond market in a drive-by execution.

Meanwhile, selling pressure in the secondary space intensified on Thursday with the cash bond market down ¾ point and returns for the ICE BofAML US High Yield index again blowing out to a negative 12% handle.

Treasury yields continued to march to new heights with the yield curve inversion the steepest in two decades as the market further digested the Federal Reserve’s Wednesday announcement and new dot plot projections.

“That’s a flashing red economic signal,” a source said.

Recession and refinancing concerns were once again front and center in the market.

While there was an uptick of activity in the secondary space on Thursday, the selling activity that did take place was orderly, a source said.

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) were weaker in heavy volume although they remained at a premium to their discounted issue price.

Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) were taking a hit on the heels of the company’s latest offering with the notes falling back below par after reclaiming a 101-handle the previous session.

Embarq Corp.’s (Lumen Technologies Inc.) 7.995% senior notes due 2036 (Ba2/BB) continued their downward spiral with the notes now down 20 points on the week.

Meanwhile, high-yield mutual and exchange-traded funds continued to see funds leave the space with outflows of $1.663 billion in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

Primary news

The new issue market generated a modest news volume (as opposed to ultramodest) on Thursday.

In drive-by action Royal Caribbean Cruises priced $2 billion of 6.25-year high-yield notes in two tranches including $1 billion of 8¼% senior secured notes (Ba3/BB-) and $1 billion of 9¼% senior guaranteed notes (B3/B+).

The notes in both tranches priced at par, in the middle of talk.

Books built to $5 billion across both tranches, according to a sellside source who added that the deal ended up being half done in reverse inquiry.

Investors were heard to be gravitating to the ostensibly subordinate of the two tranches, the 9¼% guaranteed notes, in part because of the higher coupon, but also because the guarantee involves several of Royal Caribbean's premiere cruise ships which have been capped, in terms of their use as collateral, the sellsider added.

Well after Thursday's close the market was waiting for trading on the new Royal Caribbean notes to commence, according to the source who added that trading is expected to get underway on Friday morning.

Meanwhile a big deal from an emerging markets credit kicked off a roadshow that will be playing in front of audiences that will include U.S. high-yield accounts, sources say.

Chile-based Latam Airlines Group SA began a roadshow for 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 features five-year notes and seven-year notes, with tranche sizes to be determined.

Early guidance was heard to be in the low 13% area for the five-year notes and in the low-to-mid 13% area for the seven-year notes.

As much as 40% of the deal is spoken for in reverse inquiry, across both tranches, a sellside source said.

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

The deal is expected to price during the Oct. 3 week.

Elsewhere on Thursday Citrix’s new LBO-related $4.05 billion term loan B was trading below its original issue discount, according to a report published in the Prospect News Bank Loan Daily.

Bank loan sources believe syndication of Brightspeed’s (Connect Holding II LLC) term loan B could be negatively affected and lead to a wider issue price, the report stated.

The fortunes of the Citrix term loan paper notwithstanding, the $4 billion of Citrix/Tibco 6½% senior secured notes due March 31, 2029 (B2/B), which priced Tuesday at 83.561, continued to trade at a modest premium to that new issue price, late Thursday afternoon, a high-yield sellside source said.

However, the source added, the underperformance of the Citrix loan, as well as deteriorating market conditions are expected to have an adverse impact on the Connect Holding II LLC $1.865 billion offering of seven-year senior secured notes offer (B2/B-/B+) now in the market, and scheduled to price in the week ahead.

Initial guidance has those Brightspeed notes coming with an 8% coupon, at a hefty discount, to yield 10%.

The market is now watching for the discount on the Brightspeed secured notes to deepen, and the yield to push beyond 10%, the sellsider said.

Citrix weakens

Citrix’s 6½% senior secured notes due 2029 were weaker in heavy volume on Thursday with general market conditions dragging the notes down, sources said.

The 6½% notes fell ¾ point and were wrapped around 84 heading into the close.

The notes continued to dominate activity in the secondary space with $74 million in reported volume.

While the notes have given back much of their gains, they continued to trade at a premium to their discounted issue price of 83.561.

The notes traded as high as 86 on Wednesday before coming in to close the day at 84¾ bid, 85¼ offered.

Royal Caribbean falls

Royal Caribbean’s 11 5/8% senior notes due 2027 again sank below par after reclaiming a 101-handle the previous session.

The 11 5/8% notes were down 1¼ points.

They were changing hands in the 99½ to par context throughout the session and were wrapped around 99¾ heading into the close, a source said.

There was $27 million in reported volume.

The notes moved lower on the heels of Royal Caribbean’s latest pass at the capital markets.

The cruise line operator priced $1.25 billion of the 11 5/8% notes at par on Aug. 15.

While Royal Caribbean’s most recent issue sold off on the news, the refinancing transaction priced on Thursday helped lift Royal Caribbean’s 10 7/8% senior notes due 2023 and 9 1/8% senior notes due 2023.

The 10 7/8% notes rose 1/8 point to close the day at 102 1/8, according to a market source.

There was $20 million in reported volume.

The 9 1/8% senior notes due 2023 gained ¾ point to close the day at 101¾.

There was $16 million in reported volume.

Proceeds from Royal Caribbean’s latest transaction will be used to redeem the full outstanding amount of both 2023 notes.

Embarq continues plummet

Embarq’s 7.995% senior notes due 2036 continued to plummet in heavy volume on Thursday.

The 7.995% notes fell another 6 points to close Thursday on a 50-handle.

The yield was approximately 17 7/8%.

There was $14 million in reported volume.

The 7.995% notes have lost 20 points since Monday when the financing package for Apollo’s leveraged buyout of Lumen’s assets, to be rebranded Brightspeed, was announced.

The new financing will bury the 7.995% notes in Brightspeed’s capital structure, a source said.

Indexes

The KDP High Yield Daily index fell 46 points to close Thursday at 53.04 with the yield 7.72%.

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

The ICE BofAML US High Yield index sank 74 bps with the year-to-date return now negative 12.588%.

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

The CDX High Yield 30 index fell 39 bps to close Thursday at 98.12.

The index was down 41 bps on Wednesday and 55 bps on Tuesday after rising 54 bps on Monday.

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