Junk rallies, eliminates weekly losses; Carnival lifted, earnings miss; athenahealth jumps

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 21 – The junk bond primary market remained quiet on Wednesday, the Winter Solstice, and is almost certain to remain that way until the new year, sources say.

Meanwhile, the secondary space staged a rally on Wednesday with a strong consumer confidence report and earnings calls sparked a buying frenzy in the space.

The cash bond market added ½ to 5/8 point to eliminate losses from the past two sessions.

“It was very ETF driven,” a source said. “They were out there looking for paper.”

ETFs circulated several offers-wanted-in-competition lists in the late afternoon which lifted the broader market, another source said.

However, activity in the space continued to diminish with many accounts already closed for the year.

Carnival Corp.’s capital structure made large gains on Wednesday after the release of earnings which fell short of expectations.

athenahealth Group Inc.’s 6½% senior notes due 2030 (Caa2/CCC/CCC+) were the top performers of Wednesday’s session with strong earnings and the market rally boosting the notes over 3 points.

Carnival’s earnings

Carnival’s capital structure made large gains on Wednesday after the release of earnings which one source described as “terrible.”

However, Carnival’s junk bonds jumped 1 to 3 points in heavy volume on a projected uptick in bookings and return to positive free cash flow in 2023.

Carnival’s 10 3/8% senior priority notes due 2028 (B2/B+) jumped 1¼ points to return to a 104-handle.

They were changing hands in the 104 to 104¼ context heading into the market close, according to a market source.

There was $18.5 million in reported volume.

Carnival’s 7 5/8% senior notes due 2026 (B3/B) jumped 2½ points to close Wednesday at 81 7/8 with the yield just shy of 15%.

There was $18 million in reported volume.

The 10½% senior notes due 2030 made the largest gains with the notes up 3 points to close Wednesday at 83 5/8 with the yield about 14 1/8%, according to a market source.

Carnival, a high-beta name that typically benefits from ETF rallies, were in focus after reporting earnings.

The cruise line operator missed expectations with revenue of $3.84 billion versus analyst expectations for revenue of $3.91 billion.

However, a projected uptick in bookings and swing to positive free cash flow in the latter half of 2023 sparked a rally in the name.

The company expressed its commitment to using its free cash flow to deleverage with an eye on achieving investment grade-status, Prospect News reported. (See related article in this issue.)

However, sources were skeptical with the company’s debt load north of $30 billion and refinancing risks high.

“They’ve become a very speculative name,” a source said.

athenahealth jumps

athenahealth’s 6½% senior notes due 2030 outperformed on a strong day for the market with the notes the largest gainers in the space.

The 6½% notes rose 3 5/8 points to close Wednesday wrapped around 78 with the yield 11%, a source said.

There was $10 million in reported volume.

The 6½% notes surged after athenahealth released third-quarter earnings.

While the CCC credit is from a tier that investors have shied away from, the company has no debt maturities until 2027 and plenty of liquidity, a source said.

Outflows

The dedicated high-yield bond funds sustained $311 million of net daily cash outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $217 million of outflows on the day.

Actively managed high-yield funds sustained $94 million of outflows on Tuesday, the source said.

The combined funds are tracking $2.4 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index gained 15 points to close Wednesday at 52.44 with the yield 7.23%.

The index fell 16 points on Tuesday and 17 points on Monday.

The ICE BofAML US High Yield index gained 44.7 basis points with the year-to-date return now negative 10.054.

The index fell 26.4 bps on Tuesday and 28.5 bps on Monday.

The CDX High Yield 30 index jumped 97 bps to close Wednesday at 100.87.

The index was down 24 bps on Tuesday and 29 bps on Monday.

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