Junk falls post-CPI; CNX under water; Newell weakens; Royal Caribbean gives back gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 13 – The dollar-denominated new issue market sat idle on Tuesday amid the flight from risk sparked by a hotter-than-expected Consumer Price Index report.

While quiet on Tuesday, all eyes will be on Picard Midco, Inc.’s 4 billion offering of 6.5-year senior secured notes backing the buyout of Citrix Systems Inc.

The notes were heard to be playing to solid demand at initial price talk with pricing expected next Monday.

Meanwhile, the rally in the secondary space came to an abrupt end.

Anticipation of a Consumer Price Index reading that came in below the expected year-over-year 8.1% increase added fuel to the recent market rally, sources said.

However, the CPI report blew past expectations with prices climbing 8.3% year over year despite a 10.6% decline in the gasoline index.

While the market was firm heading into the reading, it crumbled afterwards with the cash bond market falling more than 1 point and the CDX index more than 1.5 points.

There is now little doubt the Federal Reserve will raise rates by another 75 basis points at their September meeting and bets are increasing for an additional 75 bps rate increase in November, a source said.

CNX Resources Corp.’s 7 3/8% senior notes due 2031 (B1/BB/BB+) struggled under the heavy market conditions with the notes falling below par after trading with a slight premium on the break.

Newell Brands Inc.’s two tranches of split-rated notes (Ba1/BBB-/BB+) were weaker in active trading although the notes held onto some of their gains.

Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) gave back recent advances from the previous session with the notes returning to a par-handle after shooting up to a fresh high on Monday.

CNX struggles

CNX’s new 7 3/8% senior notes due 2031 were struggling under Tuesday’s heavy market conditions with the notes giving back the slight gains made after breaking for trade on Monday and falling to a 99-handle.

The notes were changing hands in the 99¼ to 99¾ context heading into the market close.

They were trading in the par to par ¼ context after breaking for trade on Monday.

CNX priced a $500 million issue of the 7 3/8% notes at par in a Monday drive-by.

The yield printed tighter than the 7½% to 7¾% yield talk.

While the coupon priced tighter than talk, the notes looked cheap with one source pegging the fair value of the deal at 7¼%.

Citrix eyed

In the primary market on Monday, Picard Midco took center stage as it rolled out a $4 billion offering of 6.5-year senior secured notes backing the buyout of Citrix Systems by Vista Equity Partners and Evergreen Coast Capital Corp.

That deal was set to officially launch on a Tuesday investor call.

Word in the market holds that there is around $3.2 billion of interest in the Picard/Citrix secured notes which are being discussed with a 6½% coupon at a discount of 88 to 90 to yield in the high-8% to 9% area, sources say.

The Citrix notes offer, which cannot have been helped by Tuesday's post-CPI stampede from risk (the S&P 500 index dropped 4.3% on the day), is in the market on a timeline that has it pricing next Monday, sources say.

Meanwhile in the euro-denominated new issue market Italy-based multinational gaming company Lottomatica SpA kicked off a €350 million offering of five-year senior secured notes (B2/B) on Tuesday.

Initial guidance has those notes coming to yield in the 10% area, with the deal expected to price later in the present week.

Newell weakens

In secondary trading, Newell Brands’ two tranches of senior notes fell in heavy volume on Tuesday although the notes were able to maintain some of their gains.

The 6 5/8% senior notes due 2029 were down 1 point with the notes changing hands in the par ¾ to 101¼ context heading into the market close.

The notes traded up to 102 on Monday.

The 6 3/8% senior notes due 2027 fell ¾ point with the notes wrapped around 101 at the end of the trading day, a source said.

They were changing hands in the 101 5/8 to 101 7/8 context on Monday.

Royal Caribbean falls

After hitting their highest level since pricing in mid-August on Monday, Royal Caribbean’s 11 5/8% senior notes due 2027 gave back all their advances from the previous session and returned to a par-handle.

The 11 5/8% notes fell 2 points to trade in the par ¼ to par ¾ context on Tuesday, a source said.

The notes shot up to a 102-handle, setting a new high, amid Monday’s market strength.

The cruise line operator’s 11 5/8% notes have been volatile over the past two weeks.

The notes sank down to a 97-handle amid the selling pressure in late August only to wipe out losses and rise to new heights in less than one week.

Indexes

The KDP High Yield Daily index fell 55 points to close Tuesday at 54.15 with the yield 7.22%.

The index rose 4 points on Monday.

The ICE BofAML US High Yield index sank 99.2 bps with the year-to-date return now negative 10.705%.

The index climbed 26.3 bps on Monday.

The CDX High Yield 30 index plunged 162 bps to close Tuesday at 99.84.

The index gained 34 bps on Monday.

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