Junk secondary rallies post-Fed; Carnival, Charter rebound; VistaJet gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 16 – The domestic high-yield primary market remained shuttered on Wednesday despite the risk-on sentiment in the market with only one deal on the forward calendar.

SPX Flow Inc.’s (Redwood Star Merger Sub. Inc.) $570 million offering of eight-year senior notes (Caa2/CCC) is set to price on Thursday although the deal was heard to be facing some headwinds.

Meanwhile, the secondary space strongly rallied on Wednesday with the market up about 1 point, nearly erasing its losses on the week.

With the Federal Reserve’s rate hike decision coming in largely as expected and Federal Reserve chair Jerome Powell’s comments about the economy assuaging some of the recession fears that sparked Monday’s brutal sell-off, buyers were returning to the space, sources said.

“The Fed didn’t do anything crazy,” a source said.

The downtrend in energy prices were also helping to bolster the overall market.

However, with the 10-year Treasury yield continuing its ascent, climbing as high as 2.248% on Wednesday before closing at 2.196%, some questioned whether the rally would have staying power.

Carnival Corp.’s junk bonds continued to recover from their recent sell-off with the cruise line operator’s capital structure rising 1½ to 3 points during Wednesday’s session.

Charter subsidiary CCO Holdings LLC’s junk bonds were also up in active trading after a rating downgrade and weak market conditions drove the notes to multiyear lows in recent sessions.

VistaJet’s 6 3/8% senior notes due 2030 (Caa1/B-/BB-), one of the worst performing new issues of 2022, gained more than 3 points as a risk-on sentiment returned to the space.

Wednesday’s primary

Although the market had a firm tone on Wednesday, nobody wanted to bring a deal with the Fed announcement pending, a sellside source said, making reference to the Federal Reserve Bank's Federal Open Market Committee raising the benchmark Fed Funds rate by ¼%, and signaling that further rate increases can be expected in each of the six ensuing 2022 Fed meetings.

Just one deal remains on the active forward calendar.

SPX Flow is shopping a $570 million offering of eight-year senior notes (Caa2/CCC) – initial guidance in the high 8% to 9% area – on a roadshow set to wrap up on Thursday.

The offer is heard to be facing headwinds, the sellsider said, adding that the order book is heard to be closing in on deal size.

If there is a deal it will probably come somewhat wide to that early guidance, the source added.

There are other deals to be done, sources say...pending market conditions.

Carnival gains

Carnival’s junk bonds continued to recover from their recent sell-off on Wednesday with the company’s capital structure up 1½ to 3 points, sources said.

Carnival’s 5¾% senior notes due 2027 (B2/B) gained 2¾ points to close the day wrapped around 95, according to a market source.

The notes were the most actively traded during Wednesday’s session with $33 million in reported volume.

Carnival’s 6% senior notes due 2029 (B2/B) rose 3 points to close the day wrapped around 94.

The 5¾% senior notes due 2027 and 6% senior notes due 2029 hit their lowest level on Monday since pricing at par in 2021.

The 5¾% senior notes traded down to a 90-handle and the 6% senior notes traded down to an 89-handle.

In addition to generally weak market conditions, the notes from the cruise line operator have been on a steady downtrend amid spiking crude oil futures.

However, crude oil futures continued to come in on Wednesday with West Texas Intermediate crude oil settling at $95.04, a decrease of $1.40 or 1.45%.

CCO Holdings bounces

Charter subsidiary CCO Holdings’ junk bonds were bouncing off their lows during Wednesday’s session.

The 4¾% senior notes due 2032 (B1/BB-) gained 1 5/8 points to close the day at 93, according to a market source.

The notes were active with about $18 million in reported volume.

The 4½% senior notes due 2032 (B1/BB-) rose 2½ points during Wednesday’s session.

They traded as high as 92½ but came in to trade in the 91½ to 92 context heading into the close, a source said.

There was about $20 million in reported volume.

CCO Holdings’ junk bonds hit a multiyear low in recent sessions with the 4½% notes trading down to an 88-handle on Monday.

The notes have taken a hit alongside other rate-sensitive names. However, there was additional selling activity after S&P Global Ratings downgraded CCO’s issuer credit rating to BB- from BB due to Charter’s shift towards secured debt.

VistaJet gains

Buyers were returning for VistaJet’s 6 3/8% senior notes due 2030 on Wednesday with the notes gaining more than 3 points.

The 6 3/8% notes rose 3 3/8 points to close the day at 91¾, according to a market source.

They were active with more than $10 million in reported volume.

While the notes were robustly up on Wednesday, the aviation company’s 6 3/8% notes still rank as one of the worst performing deals of 2022.

VistaJet priced a $1 billion issue of the 6 3/8% notes at par on Jan. 20.

The notes priced tight for their credit rating and have taken a hit alongside other lower coupon CCC credits amid the downturn in the market.

Mixed fund flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, according to a market source.

High-yield ETFs saw $105 million inflows on the day.

However actively managed high-yield funds sustained $250 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index jumped 40 points to close Wednesday at 61.18 with the yield now 5.65%.

The index was down 1 point on Tuesday and 61 points on Monday.

The KDP High Yield Daily index returned to a 105-handle on Wednesday.

The index gained 111 basis points to close the day at 105.31. The index rose 45 bps on Tuesday after dropping 28 bps on Monday.

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