Royal Caribbean, Covanta reopen junk primary; energy strong; Freeport-McMoRan, AMC down

By Abigail W. Adams

Portland, Me., Jan. 4 – The 2022 dollar-denominated high-yield primary market commenced action on Tuesday with two drive-by issuers pricing a combined $1.47 billion face amount of paper.

Royal Caribbean Cruises Ltd. priced an upsized $1 billion issue of 5.5-year senior bullet notes (B2/B).

Covanta Holding Corp. priced a $465 million tack-on to its 4 7/8% sustainability-linked unsecured notes due Dec. 1, 2029.

Both deals were heavily oversubscribed and saw strong breaks.

Meanwhile, it was a volatile day in the secondary space with the market opening up 1/8 point only to close down about 1/8, sources said.

The 10-year Treasury yield continued to climb adding pressure to rate-sensitive names.

However, crude oil futures also continued to gain, bolstering the energy space.

Transocean Inc.’s junk bonds were among the major gainers of Tuesday’s session.

However, Freeport-McMoRan Inc.’s 5.45% senior notes due 2043 were down in active trading.

AMC Entertainment Holdings, Inc.’s issue of 10% senior secured second-lien notes due 2026 (Ca/CCC-) remained active with the notes giving back some gains from a recent rebound.

Primary reopens

The 2022 dollar-denominated high-yield primary market commenced action on Tuesday with two drive-by issuers pricing a combined $1.47 billion face amount of paper.

With both deals at least four-times oversubscribed, the appetite for junk appears vigorous, sources said.

And there was a marked increase in secondary market activity on Tuesday, they added.

Royal Caribbean Cruises priced an upsized $1 billion issue (from $700 million) of 5 3/8% senior bullet notes due July 2027 at par, at the tight end of talk.

The deal was in the market with $200 million of reverse inquiry, and ended up playing to $4.5 billion of demand at the close of books, a trader said.

After breaking to a robust 101 bid, 101½ offered, the new Royal Caribbean 5 3/8% notes due July 2027 eased to par ¾ bid, 101¼ offered, the source added.

The new bonds came cheap to the existing 5½% senior notes due 2028 which were trading with a 5.19% yield to call on Tuesday, the trader said, noting an analyst's assertion that barring a catastrophic turn of events, such as a government-ordered shutdown of the cruise lines because of the pandemic, the new bonds should trade inside of 5%.

The market is anticipating a sizable supply of unsecured paper from the cruise lines in 2022, the trader said.

Royal Caribbean will almost certainly return to the high-yield primary market before the end of the year, sources said Tuesday.

Tuesday's deal represented Royal Caribbean's sixth pass at the market (seven tranches totaling $8.47 billion) since the coronavirus began wreaking havoc on the cruise line industry in the early months of 2020 (see related story in this issue).

Also on Tuesday, Covanta priced a $465 million tack-on to its 4 7/8% sustainability-linked unsecured notes due Dec. 1, 2029 at 101, resulting in a 4.642% yield to worst.

The tap priced at the rich end of the 100.5 to 101 talk, and was playing to around $1.7 billion of demand at close of books, a trader said.

It was trading at 101.375 bid, 101.875 offered late Tuesday afternoon, a trader said.

Transocean gains

Transocean’s junk bonds were the major gainers of Tuesday’s session, which was a strong day for energy names.

The offshore drilling contractor’s 11½% senior notes due 2027 were up about 2½ points to close the day at 101½, according to a market source.

There was about $16 million in reported volume.

While volume was light, the company’s 7¼% senior notes due 2025 gained 2 points to 80½ and the 8% senior notes due 2027 rose 1 point to 76.

Crude oil futures continued to climb on Tuesday following OPEC’s decision to stick with its previously announced production levels.

West Texas Intermediate crude oil futures settled at $76.99, an increase of 91 cents or 1.2%; Brent crude oil futures settled at $80.15, an increase of $1.17 or 1.48%.

Freeport-McMoRan down

Freeport-McMoRan’s 5.45% senior notes due 2043 were trading off on Tuesday.

The notes fell about 2 3/8 points to close the day at 123 3/8 with the notes now yielding about 3.8%, according to a market source.

There was about $8 million in reported volume.

Moody’s Investors Service upgraded Freeport-McMoRan’s unsecured debt to Baa3 from Ba1 in late December.

The upgrade boosted the notes as high as 127. However, they have been on a downward trend since the final days of 2021.

AMC gives back gains

AMC’s 10% senior secured second-lien notes due 2026 were again under pressure on Tuesday after a two-week rally that saw the notes broach par the previous session.

The 10% notes were down 1 3/8 points in active trading to close the day at 98½, according to a market source.

There was about $20 million in reported volume.

After trading as low as 92 in late November, the notes have been on the rebound. They traded up to par on Monday following news reports that the company was considering debt refinancing in 2022.

Monday fund flows

The dedicated high-yield bond funds sustained $213 million of net daily outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $263 million of outflows on the day.

Actively managed high-yield funds were positive on the day, posting $50 million of inflows on Monday, the source said.

The combined funds are tracking $405 million of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 10 points to close Tuesday at 65.75 with the yield now 3.94%.

The index was down 9 points on Monday.

The CDX High Yield 30 index was down 7 points to close Tuesday at 109.05.

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