Junk bonds unmoved in muted activity; Carnival eliminates gains, flat on week; AMC rises

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 23 – The junk bond primary market remained idle ahead of Friday's early close, and is expected to remain so until the new year, sources say.

It was an uneventful day in the secondary space with the cash bond market unchanged and activity virtually nonexistent with the books for many investors closed for the year.

The Consumer Price Expenditure report, which was expected to be the last major catalyst for market movement, was a non-event with the report coming in-line with expectations, a source said.

The secondary space is closing the week largely flat after wild swings after heavy selling on Monday and Tuesday followed by a buying frenzy on Wednesday which was followed by more selling on Thursday.

The volatility has become commonplace in the secondary sector and is expected to continue in the coming year.

While the market is closing 2022 well off the lows of the year, it saw its worst performance since 2008 with negative returns of about 10.5%.

There was little activity on Friday with even the large, liquid issues that have driven activity muted.

Carnival Corp.’s 10 3/8% senior priority notes due 2028 (B2/B+) were among the most actively traded issues during Friday’s session with the notes eliminating their gains from Wednesday’s rally and closing the week largely flat.

AMC Entertainment Holdings, Inc.’s 7½% notes due 2029 (Caa1/B-) recovered their losses from the previous session with the notes closing the week with strong gains following news it was walking away from a potential acquisition.

Carnival flat

Carnival’s 10 3/8% senior priority notes due 2028 were one of the most actively traded issues of Friday’s abbreviated session with the notes continuing to weaken after Wednesday’s strong rally.

The 10 3/8% notes fell ½ point to trade in the 103 to 103¼ context, a source said.

The notes briefly climbed to a 104-handle on Wednesday after earnings were reported, amid a backdrop of an ETF-driven surge in the secondary space.

However, the notes gave back their gains over the past two sessions to close the week flat.

The 10 3/8% notes rank among the best performing deals of 2022, a year when the majority of deals to clear the primary market are underwater.

Carnival priced the $2.03 billion issue at 98.465 to yield 10¾% on Oct. 19.

The 10 3/8% notes were issued by recently created subsidiary Carnival Holdings (Bermuda) Ltd. and achieved a higher credit rating than its other unsecured notes due to their guarantees.

Carnival tapped the junk bond market two times in 2022.

Its other deal has not performed well.

Carnival’s 10½% senior notes due 2030 (B3/B) were not active on Friday with the notes closing the year wrapped around 82 with the yield 14½%.

Carnival priced a $1 billion issue of the 10½% notes at par on May 18.

Carnival will be a closely watched credit in 2023 with the secondary performance of cruise line operators serving as a recession indicator.

While the market initially responded favorably to Carnival’s earnings, despite revenue that came in below expectations, the company currently has negative EBITDA and free cash flow and a debt burden north of $30 billion.

The company is particularly susceptible to refinancing risks, a source said.

AMC rises

AMC’s 7½% notes due 2029 recovered losses from the Thursday session and closed the week with strong gains.

The 7½% notes rose 2 points to close Friday on a 53-handle.

The notes were trading in the 53 1/8 to 53 3/8 context heading into the early close with the yield about 21½%, according to a market source.

The notes were wrapped around 47½ entering into Wednesday’s session.

However, they catapulted up to 54 on a strong day for the market and on topical news.

AMC announced on Wednesday that it had been in talks with Cineworld about a potential strategic acquisition, but those discussions were no longer active.

Indexes

The CDX High Yield 30 index rose 32 basis points to close Friday at 100.89.

The index fell 30 bps on Thursday, jumped 97 bps on Wednesday and fell 24 bps on Tuesday and 29 bps on Monday.

The index posted a cumulative gain of 46 bps on the week.

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