RXO, Latam price; Royal Caribbean junk bonds sink lower; Ford reapproaches all-time low

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 11 – Market participants were juggling multiple new junk bond deals, at various points of the pricing process, after coming back from a three-day holiday in the United States.

Meanwhile, it was a slow return from the weekend in the secondary space with volume light as volatility continued to whipsaw broader markets.

While equity markets seesawed between gains and losses, the high-yield secondary space remained under pressure with the cash bond market down ½ to ¾ point.

Investors were nervous ahead of Thursday’s Consumer Price Index report, especially given last Friday’s non-farm payroll report, a source said.

However, Royal Caribbean Group’s recently priced tranches continued their downtrend with the 9¼% senior priority guaranteed notes due 2029 (B3/B+) again falling below par.

The cruise line operator’s 11 5/8% senior notes due 2027 (B3/B) hit their lowest level on Tuesday since pricing with the notes breaking below a 90-handle.

Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) also continued to trend down with the notes reapproaching their all-time low.

Primary activates

The primary market generated a steady stream of mostly positive news on Tuesday.

It was by far the strongest daily volume of new issue news since early summer.

RXO, Inc. priced an upsized $355 million issue of 7½% split-rated five-year senior notes (Baa3/BB+) at 98.962 to yield 7¾%.

The deal, backing XPO Logistics, Inc.'s spinoff of its transportation brokerage platform, came in an accelerated high-yield style execution. When it launched on Tuesday morning it had been expected to remain in the market through Wednesday.

The coupon came at the tight end of the 7½% to 7¾% coupon talk. The issue price came at the cheap end of the 98.962 to 98.968 discount talk. The yield came at the tight end of the 7¾% to 8% yield talk. Initial guidance had the notes coming at a discount to yield 7¾% to 8%.

The deal, upsized from $350 million, was heard to be playing to $800 million of demand, and broke to 99½ bid, par ¼ offered.

Meanwhile Chile-based Latam Airlines Group SA priced a downsized $1.15 billion amount of senior secured notes (B-) in two tranches, shifting $350 million to its concurrent term loan.

The deal included a downsized $450 million tranche of 13 3/8% five-year notes that priced at 94.423 to yield 15%. The tranche was downsized from $500 million after having previously been downsized from $750 million. The coupon, price and yield all came on top of talk. Initial guidance had the five-year notes coming to yield in the low 13% area.

The deal also included a downsized $700 million tranche of 13 3/8% seven-year notes that priced at 93.103 to yield 15%. The tranche was downsized from $750 million. The coupon, price and yield all came on top of talk. Initial guidance had the seven-year notes coming to yield in the low-to-mid 13% area.

The overall amount of notes issuance decreased from $1.5 billion.

The five-year notes traded to 95½ bid, 96¼ offered (issue price was 94.423), while the seven-year notes traded to 94½ bid, 95¼ offered (issue price was 93.103).

Color on the final demand varied.

In the end the company shifted proceeds to the loan because it has greater pre-payability than the bonds, the portfolio manager remarked.

Calendar

Away from Tuesday's executions the session saw a regeneration of the active new issue calendar.

London-based energy E&P sector player EnQuest plc is on the road with a $300 million offering of five-year senior notes (B3/B+) with initial guidance that has them coming to yield in the 12¼% area.

The roadshow for the debt refinancing deal is set to conclude on Wednesday.

And in the euro-denominated high-yield bond market Fiber Bidco SpA began a roadshow on Monday for an €875 million two-part offering of five-year senior secured notes (B2/B/BB-) backing the buyout of Italian specialty paper manufacturer Fedrigoni by Bain Capital and BC Partners.

The deal includes fixed-rate notes with initial guidance of 11½% to 12%, and floating-rate notes with initial guidance of Euribor plus 600 basis points at a discount of 90.

The roadshow runs through Thursday.

There is solid demand for new issues because most high-yield accounts are still holding above average amounts of cash, a trader remarked on Tuesday.

Royal Caribbean down again

Royal Caribbean’s recently priced tranches continued their downtrend on Tuesday.

Royal Caribbean’s 9¼% senior priority guaranteed notes due 2029 (B3/B+) again fell below par after trading as high as 101½ in the market rally early last week, a source said.

The 9¼% notes traded as low as 99¼ in intraday activity but bounced off their lows and were changing hands in the 99½ to 99¾ context heading into the close, a source said.

While volume in the tranche was lighter, the 8¼% senior secured notes due 2029 (Ba3/BB-) fell 1 point to return to a 98-handle.

The notes were changing hands in the 98¼ to 98½ context heading into the close, a source said.

Royal Caribbean priced a $1 billion issue of the 8¼% notes and a $1 billion issue of the 9¼% notes at par on Sept. 22.

While both tranches initially struggled in the aftermarket, they were lifted in last week’s rally with the 9¼% notes trading up to a 101-handle and the 8¼% notes broaching par.

However, they gave back much of their gains amid last Friday’s sell-off, a source said.

As Royal Caribbean’s most recent tranches resumed their downward trend, the cruise line operator’s 11 5/8% senior notes due 2027 hit their lowest level on Tuesday since pricing in mid-August.

The 11 5/8% notes were down 1 point with the notes breaking below a 90-handle.

They were changing hands in the 89½ to 90 context heading into the close with the yield about 14¾%, a source said.

Ford reapproaches lows

Ford’s 6.1% senior green notes due 2032 also continued to trend lower with the notes giving back all gains from the rally the previous week.

The 6.1% notes fell 1½ points with the notes trading in the 88½ to 89 context heading into the market close, a source said.

The notes were reapproaching their all-time low of 87¾ after trading as high as 93 the previous week.

Fund flows

High-yield ETFs sustained $226 million of cash outflows on Friday, according to a market source.

The cash flows of the ETFs were absolutely flat on Monday, the source said.

Actively managed high-yield funds were positive on the day, posting $119 million of inflows on Friday, the source said.

The actively managed funds had $70 million of inflows on Monday.

The combined funds are tracking $300 million of net inflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index was down 44 points to close Monday at 51.27 with the yield now 8.02%.

The ICE BofAML US High Yield index fell 77 basis points with the year-to-date return now negative 14.155%.

The CDX High Yield 30 index was down 45 bps to close Monday at 96.36.

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