Carpenter on deck; risk-on in junk secondary; Carnival, American pare losses; Athena better

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 9 – While no deal cleared the primary market on Wednesday, there were signs of life with one more deal joining the forward calendar.

Carpenter Technology Corp. began a brief roadshow for a $300 million offering of eight-year senior notes (B2/BB+/BB) with pricing expected on Friday.

Meanwhile, the secondary space broke its losing streak with the market bouncing ¾ to 1 point as buyers returned to the space, propelled by optimism over a possible cease-fire in the Ukraine.

The hard-hit travel sector saw some relief as crude oil futures backed off their heights on Wednesday.

Carnival Corp.’s and American Airlines, Inc.’s junk bonds pared their losses in active trading, although they remain down on the week.

Several other junk bonds that sank in the recent market rout were also bid up on Wednesday as a risk-on sentiment returned to the market.

The athenahealth (Minerva Merger Sub, Inc.) 6½% senior notes due February 2030 (Caa2/CCC/CCC+) gained more than 1 point in active trading.

Carpenter on deck

No high-yield bond deals priced on Wednesday; however, the lights came up in the new issue market as Carpenter Technology began a brief roadshow for a $300 million public offer of eight-year senior notes (B2/BB+/BB) with initial guidance in the low-to-mid 7% area. Pricing is expected on Friday.

Carpenter Technology joins SPX Flow Inc. (Redwood Star Merger Sub. Inc.), the only other deal on the active forward calendar, a $570 million offering of eight-year senior notes (Caa2/CCC) with initial guidance in the high 8% to 9% area, and running a full roadshow set to wrap up on March 17.

There are certainly more deals to be done, especially if the market maintains Wednesday's ultra-positive tone, a syndicate banker said.

Noting that Wednesday's $30 billion high-grade megadeal from AT&T Inc. and Discovery Inc. – among the five biggest bond deals on record – was playing to massive amounts of demand, the official said that there can be no doubt that the bond market is open.

In terms of high-yield bonds, the supply is not endless, which is probably a good thing, the syndicate official added.

Should a return of volatility sideline the new issue market for a protracted period, it's just as well that there is not a massive amount of committed deals to get hung up, in the event that syndication proves extremely difficult over an extended period of time.

Right now, the banks are feeling pretty decent about their exposure, the official remarked.

Travel names improve

Carnival’s and American Airlines’ junk bonds continued to dominate the tape on Wednesday with the notes paring their losses as crude oil futures backed off their heights.

Carnival’s 5¾% senior notes due 2027 rose 2½ points to return to a 93-handle.

The notes were changing hands in the 93 to 93½ context heading into the market close.

There was $21 million in reported volume.

While the notes saw a strong rebound on Wednesday, they were still down 2 points on the week. The notes closed last Friday on a 95-handle.

Carnival’s 6% senior notes due 2029 were up 2 points to return to a 92-handle.

The notes were changing hands in the 92 3/8 to 92 5/8 context heading into Wednesday’s close.

There was $20 million in reported volume.

The notes were still down 1 point on the week. They closed last Friday on a 93-handle.

Turning from water to air, American Airlines’ junk bonds also recouped some losses although they remained under pressure.

American’s 5¾% senior notes due 2029 were up ¾ point to close the day at 97.

There was $30 million in reported volume.

The notes were still down 3½ points on the week. They closed the previous week above par.

American’s 11¾% senior notes due 2025 gained 1¼ points to close Wednesday at 113¼.

There was $25 million in volume.

However, the notes were still down 5 points on the week.

Travel names were among the hardest hit in the recent round of selling in the secondary space as surging crude oil futures threatened margins, sources said.

However, travel names had some relief on Wednesday as crude oil futures came in.

West Texas Intermediate crude oil futures fell $15 or 12.13% to settle at $108.70; Brent crude oil futures fell $14.98 or 11.70% to settle at $113.

athenahealth improves

athenahealth’s struggling 6½% senior notes due February 2030 improved in active trading on Wednesday.

The notes rose about 1 point. They were changing hands in the 94½ to 95 context throughout the session, a source said.

The notes hit their lowest level since pricing on Tuesday, closing the day in the 93½ to 94 context.

The majority of new junk issuance in 2022 is currently under water, according to a market source.

However, athenahealth’s 6½% notes are the largest year to date; the $2.35 billion issue priced at par in late January as part of the leveraged buyout of athenahealth by Bain Capital and Hellman & Friedman.

Tuesday outflows

The dedicated high-yield bond funds sustained $394 million of net outflows on Tuesday, according to a market source.

High-yield ETFs saw $238 million of outflows on the day.

Actively managed high-yield funds sustained $156 million of outflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index gained 6 points to close Wednesday at 61.94 with the yield now 5.38%.

The index sank 35 points on Tuesday and 21 points on Monday.

The CDX High Yield 30 index returned to a 104-handle on Wednesday.

The index was up 86 basis points to close Wednesday at 104.82. The index gained 36 bps on Tuesday after sinking 82 bps on Monday.

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