Secondary downtrend continues; Royal Caribbean sinks further, Change Healthcare active; Embarq bounces

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 26 – The dollar-denominated new-issue junk-bond market remained quiet on Monday as volatility continued to rock the global capital markets, and the yield of the 10-year Treasury spiked by 20 basis points to 3.9%, the highest it has been in well over a decade, sources said

The euro-denominated primary market generated news on Monday, however.

Villa Dutch Bidco kicked off a €425 million offering of seven-year senior secured notes (B2/B) backing Bain Capital's acquisition of a majority stake in House of HR.

And Verisure Holding AB started a roadshow for a €500 million offering of five-year senior secured notes (B1/B). Marketing of the debt refinancing deal is set to run through Wednesday.

Meanwhile, the pain in the secondary space continued on Monday as Treasury yields hitting fresh highs amid hawkish comments from the Bank of England.

The cash bond market fell another ¾ point on Monday with the ICE BofAML US High Yield index returns blowing past negative 14%.

The CDX index broke below a 97-handle as the market once again revisited the lows of the year.

New and recent issues continued to see heavy volume with Royal Caribbean Cruises Ltd.’s recently priced tranches sinking further below par.

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) were active although with little movement in price as the notes hovered around their deeply discounted issue price.

Topical news also drove some outstanding issues into the spotlight.

Change Healthcare Holdings, LLC’s 5¾% senior notes due 2025 (Caa1/B-) saw heavy volume but little movement in price after last week’s court win that will allow UnitedHealth Group’s acquisition of the company to move forward.

Embarq Corp.’s (Lumen Technologies Inc.) 7.995% senior notes due 2036 (Ba2/BB) bounced off their lows in active trading as holders organize against Connect Holding II LLC’s new debt package, which buries the notes in the capital structure.

Royal Caribbean under water

Royal Caribbean’s latest debt offering continued to struggle in the aftermarket on Monday as recession fears continued to drive the secondary space lower.

Royal Caribbean’s 8¼% senior secured notes due 2029 (Ba3/BB-) sank 1¼ points with the notes closing the day on a 98-handle, according to a market source.

The notes were changing hands in the 98½ to 98¾ context heading into the market close.

There was $30 million in reported volume.

Royal Caribbean’s 9¼% senior priority guaranteed notes due 2029 (B3/B+) were down ¾ point with the notes trading in the 98¾ to 99¼ context heading into the market close.

There was $25 million in reported volume.

Royal Caribbean’s most recent tranches have struggled in the aftermarket with the notes pricing amid weak market conditions.

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 as markets reeled in response to the Federal Open Market Committee’s latest announcement.

Citrix flat

Tibco’s 6½% senior secured notes due 2029 continued to see heavy volume, although the notes held amid the selling pressure on Monday.

The 6½% notes continued to hover around 83½ in active trade.

There was $27 million in reported volume.

The notes initially put in a strong performance in the aftermarket; however, they gave back their gains amid Friday’s sell-off with the notes hovering at issue price since.

Tibco Software priced $4 billion of the 6½% notes at 83.561 to yield 10% on Sept. 20 before the Federal Reserve meeting threw markets into a tailspin.

Change Healthcare active

Change Healthcare’s 5¾% senior notes due 2025 saw heavy volume on Monday although with little movement in price.

The 5¾% notes remained on a 99-handle and were changing hands in the 99¼ to 99½ heading into the market close.

There was $20 million in reported volume with buyers outpacing sellers, a source said.

While little changed on Monday, the notes have risen 1 point since last week when UnitedHealth Group won court approval for its acquisition of the healthcare technology company.

The Department of Justice had sought to block the deal but a federal judge ruled in favor of it last Monday.

UnitedHealth announced its $13 billion acquisition of Change Healthcare in 2021.

However, the acquisition was met with opposition from several industry lobbying groups claiming the deal would give UnitedHealth an unfair competitive advantage by giving it access to data on rival insurance companies.

Embarq bounces

Embarq’s 7.995% senior notes due 2036 bounced off their lows on Monday as holders organize to oppose the Connect Holdings/Brightspeed debt package which will bury the notes in Brightspeed’s capital structure.

The 7.995% notes gained 5 points to close Monday at 55¼ with the yield 16¼%, according to a market source.

There was $14 million in reported volume.

The 7.995% notes broke below 50 last Friday after losing more than 20 points in a single week.

The notes plummeted after the financing package for Apollo’s leveraged buyout of Lumen’s assets, to be rebranded Brightspeed, was announced.

However, holders of the 7.995% notes are starting to organize and have sent a formal letter to Apollo and Lumen claiming the guarantees for the new debt being marketed violates the indenture governing the 7.995% notes, a source said.

Fund flows

The dedicated high-yield bond funds sustained $206 million of net daily outflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $192 million of outflows on the day.

Actively managed high-yield funds sustained $14 million of outflows on Friday, the source said.

The combined funds are tracking $1.69 billion of net outflow for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 45 points to close Monday at 52.08 with the yield now 8.12%.

The index posted a cumulative loss of 94 points on the week last week.

The ICE BofAML US High Yield index fell 75 basis points the year-to-date return now negative 14.209%.

The index posted a cumulative loss of 217.4 bps on the week last week.

The CDX High Yield 30 index dropped 69 bps to close Monday at 96.82.

The index posted a cumulative loss of 142 bps on the week last week.

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