Carnival drives-by, existing issues mixed; secondary extends gains; Royal Caribbean volatile

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 18 – Carnival Corp. priced Tuesday's sole high-yield deal, an upsized $2.03 billion issue of 10 3/8% 5.5-year senior priority notes ( B2/B+) at 98.465 to yield 10¾%.

The drive-by upsized from $1.25 billion, with the yield printing at the tight end of yield talk ( 75 basis points beneath the wide end of initial guidance) and the issue price coming slightly rich to price talk.

The order book, which was heard to have built rapidly, ended up with $6 billion of demand, including $750 million of reverse inquiry, according to a sellside source, who added that much of that demand emanated from real-money accounts.

The Carnival Holdings ( Bermuda) Ltd. 10 3/8% senior priority notes due May 2028 were 98 7/8 bid, 99 1/8 offered ( issue price was 98.465) late Tuesday afternoon.

Tuesday came to a close with just one dollar-denominated deal, a Nordic transaction, remaining on the active forward calendar.

Netherlands-based offshore oil and gas services company Bluewater Holding BV is in the market with a $240 million offering of four-year senior notes expected to price later in the week.

Meanwhile, the secondary space saw a strong open as the risk-on sentiment of the previous session carried over to Tuesday activity.

However, the market reached its peak in early activity with the rally fading as the session progressed.

“It’s off the highs, but still firmer,” a source said.

The cash bond market logged another ½ point gain at the close with the CDX index jumping to a 98-handle.

Cruise lines were in focus following Carnival’s latest pass at the junk market.

The cruise line operator’s capital structure was mixed with some notes on the rise while others were driven lower, a source said.

Royal Caribbean Group’s recently priced tranches were volatile in heavy volume with its 9¼% senior priority guaranteed notes due 2029 ( B3/B+) and 8¼% senior secured notes due 2029 ( Ba3/BB-) strong early in the session but closing the day unchanged to slightly weaker.

Carnival mixed

Carnival was the name of the day in the junkbondland on Tuesday as the cruise line operator’s latest pass at the market jumpstarted activity in its capital structure.

Carnival’s notes were mixed with some tranches adding in the heavy volume while other tranches were driven lower.

The 9 7/8% senior secured second priority notes due 2027 ( B1/B) were the hardest hit by the new offering.

The notes fell 2 points to a 93-handle in heavy volume.

They stood poised to close the day at 93¼ with a yield of 11¾%, a source said.

Carnival’s 10½% senior notes due 2030 ( B3/B-) jumped 2 points in early activity to hit a 78-handle with a yield of about 15 3/8%, a source said.

However, the notes gave back much of their gains as the rally in the secondary space faded.

The notes were up about ½ point at Tuesday’s close.

They were wrapped around 76½ with the yield just shy of 16%.

There was $30 million in reported volume.

Carnival’s latest offering was hitting its secured paper the hardest with 12 unencumbered cruise ships valued at $8.2 billion serving as collateral for the latest offering, a source said.

Royal Caribbean gains

Royal Caribbean’s recently priced tranches were volatile in heavy volume with its 9¼% senior priority guaranteed notes due 2029 and 8¼% senior secured notes due 2029 strong early in the session but closing the day unchanged to slightly weaker.

Royal Caribbean’s 9¼% notes rode the wave from Monday’s rally in early trading with the notes rising another ½ point to trade as high as 101.

However, the notes quickly came in as the rally in the space faded with the notes ending the day ¼ point weaker.

The notes traded down to par in intraday activity but were changing hands in the par ¼ to par ¾ context heading into the market close, a source said.

There was $46 million in reported volume.

The 9¼% notes have gained 1½ points to jump above par over the past few sessions.

There may have been some profit taking in the issue, a source said.

Royal Caribbean’s 8¼% senior secured notes due 2029 also saw a strong start with the notes hitting par early in the session for the first time since pricing in early October.

However, the 8¼% notes were unable to hold onto their gains with the notes returning to a 99-handle.

They ended the day largely unchanged with the notes changing hands in the 99¼ to 99½ context.

There was $25 million in reported volume.

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.

The 9¼% notes continue to outperform their secured counterpart with the larger coupon and the cruise ships valued at $7.2 billion that serve as the guarantee for the notes making them more attractive.

Fund flows

High-yield ETFs saw healthy cash inflows of $617 million on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high- yield funds were negative on the day, however, sustaining $149 million of outflows on Monday, the source said.

The combined funds are tracking $413 million of net outflows for the week that will conclude with Wednesday's close, accord to the market source.

Indexes

The KDP High Yield Daily index rose 15 points to close Tuesday at 51.60 with the yield 7.86%.

The index rose 28 points on Monday.

The ICE BofAML US High Yield index was up 44.9 basis points with the year-to-date return now negative 13.366%.

The index gained 50.9 bps on Monday.

The CDX High Yield 30 index gained 75 bps to close Tuesday at 98.31.

The index jumped 121 bps on Monday.

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