Ford, Realogy price junk bonds; calendar grows; secondary weak; Royal Caribbean comes in

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 5 – The Wednesday junk bond session got off to a promising start in the primary market, as two well-known issuers showed up with drive-by deals, while the first debut issuer of the year began a brief roadshow.

The release of minute notes from the Federal Reserve’s December meeting dampened enthusiasm in the primary and set the stage for a soft day in the secondary space with the cash bond market down ½ to ¾ point as Treasury yields spiked following the release.

The 10-year Treasury yield crossed the 1.7% threshold on Wednesday with minute notes indicating a possible rate increase by March.

While the cash bond market has held up well in the face of equity sell-offs throughout 2021, the markets were moving inline on Wednesday, marking a return to the status quo, a source said.

Royal Caribbean Cruises Ltd.’s 5 3/8% senior notes due 2027 (B2/B) gave back their gains and traded back down to par in high-volume activity.

The cruise line’s 5½% senior notes due 2028 were also losing steam in active trading.

Covanta Holding Corp.’s 4 7/8% sustainability-linked senior notes due 2029 were also down in active trading on Wednesday following Tuesday’s add-on.

Wednesday primary

After a promising start to the morning, the release of minutes from the Dec. 14-15 meeting of the Federal Reserve's policy-making Federal Open Market Committee snuffed out whatever joy the markets may have carried from the recent holidays into the new year, sources said.

While the session's $3 billion of issuance in three tranches from two issuers drew big crowds, and came in what appeared to be crisp executions, all of the new bonds from Ford Motor Credit Co. LLC and Realogy Group were trading below their issue prices, late Wednesday afternoon.

Ford Motor Credit priced $2 billion of unsecured notes (Ba2/BB+) in two bullet tranches.

The deal included $1.25 billion 2.3% three-year notes that priced at 99.999 to yield 2.3%. The yield printed at the tight end of yield talk in the 2.35% area.

It also included $750 million of 2.9% seven-year notes that priced at 99.998 to yield 2.9%. The yield printed at the tight end of yield talk in the 2.95% area.

Pro forma on both tranches had the new Ford paper coming cheap to existing issues, sources said.

The long tranche (2.9% coupon), was initially guided at 3 3/8%, a nice concession to the issuer's existing 2027 notes which were trading with a 2.85% implied yield early Wednesday, a trader said.

However, pricing ground nearly half a percent tighter during the course of the day.

The $9.7 billion of interest the deal initially kindled, across both tranches, ultimately dwindled, sources said.

Meanwhile on Wednesday Realogy Holdings Corp. priced an upsized $1 billion issue of 8.25-year senior notes (B2/B+) at par to yield 5¼%.

The issue size increased from $900 million, after having earlier grown from the originally announced size of $550 million.

The yield came at the tight end of the 5¼% to 5½% yield talk. Initial guidance was in the mid-5% area.

The deal, which was heard to have been driven into the market on $350 million of reverse inquiry, with $2.5 billion in the order book at midday, traded as low as 99¼ bid, 99¾ offered, post-break, a trader said.

Also hampering Wednesday's new issue activity was the above-mentioned Fed minutes, which upon release triggered capital markets sell-offs as they left little question that the central bank will focus in the months ahead on trimming its own balance sheet while raising interest rates in an attempt to get in front of the biggest inflationary wave that the U.S. economy has seen in decades, a trader said.

A Wednesday buildup in the active new issue calendar included a deal from the first debut issuer of 2022.

ZipRecruiter began a brief roadshow for a $500 million offering of eight-year senior notes (B2/BB-/BB-).

Initial guidance has the notes coming to yield in the low 5% area, and pricing Friday (see related stories in this issue).

Royal Caribbean comes in

Royal Caribbean’s 5 3/8% senior notes due 2027 gave back their gains after a strong break the previous session and traded back down to par.

The notes were marked at par bid, par ¼ offered, a source said.

They had jumped to a 101-handle shortly after breaking for trade on Tuesday but closed the day at par ¾ bid, 101¼ offered, a source said.

Royal Caribbean priced an upsized $1 billion, from $700 million, issue of the 5 3/8% notes at par in a Tuesday drive-by.

Pricing came at the tight end of yield talk in the 5½% area. The deal was heard to be as much as 4x oversubscribed.

Royal Caribbean’s 5½% senior notes due 2028 were also down in active trading.

The notes fell about ¾ point to close the day at par ¾, according to a market source.

In addition to being driven down by general market conditions, the 5½% notes were trading rich compared to Royal Caribbean’s latest offering.

The 5½% notes were changing hands in the 101½ to 101¾ context on Tuesday with a yield of 5.19%.

However, the yield on the 5½% notes rose to 5 3/8% on Wednesday.

Covanta down

Covanta’s 4 7/8% senior notes due 2029 traded back down to their reoffer price on Wednesday following Tuesday’s add-on.

The 4 7/8% notes were changing hands in the 101 to 101 3/8 context heading into the market close.

They had traded as high as 101 7/8 following Tuesday’s add-on.

Covanta priced a $465 million add-on to the 4 7/8% notes at 101 to yield 4.642% on Tuesday.

The deal priced at the rich end of talk for a reoffer price of 100.5 to 101 and played to about $1.7 billion of demand.

Coinbase

A trader was watching Coinbase Global Inc.’s 3 5/8% issue on Wednesday and noted the market activity on the notes.

The 3 5/8% senior guaranteed notes due 2031 closed at 91 3/8 bid, down around 5/8 on the day, after being as low as 89¾ bid earlier.

The yield on the notes was pushed up to 4.741% with the price shifted lower.

The 89¾ bid is a low point for the notes which were offered in mid-September.

They dipped into that range in mid-December, but had staged a rally in late December to peak at 93½.

However, since that time they have been trending lower, once again.

Right or wrong, the perception of Coinbase’s fortune is tied to the perception of bitcoin’s value and bitcoin’s value is down 8.86% over the past five days, 13.95% on the month.

Tuesday inflows

The dedicated high-yield bond funds saw $122 million of net daily inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $90 million of inflows on the day.

Actively managed high-yield funds saw $32 million of inflows on Tuesday, the source said.

Indexes

The KDP High Yield Daily index fell 12 points to close Wednesday at 65.63 with the yield now 3.99%.

The index was off 10 points on Tuesday and 9 points on Monday.

The CDX High Yield 30 index fell 48 bps to close Wednesday at 108.57. The index was down 7 bps on Tuesday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.