Ziggo prices junk bonds; Royal Caribbean under water; Ford mixed; Bed Bath & Beyond falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., Jan. 6 – With a challenging backdrop one issuer managed to clear the high-yield bond calendar, although not with overwhelmingly good pricing for its new two-part issue.

VodafoneZiggo sold a $2.1 billion equivalent new issue on Thursday and left just one name on the calendar going into the last day of the week.

Meanwhile, the secondary space remained weak on Thursday. While the tone improved as equities rallied midway through the session, losses continued to mount for rate-sensitive names.

The 10-year Treasury yield hit its highest level in two years on Thursday, climbing to 1.751% before closing the day at 1.724%.

New issues felt some pain.

Royal Caribbean Cruises Ltd.’s recently priced 5 3/8% senior notes due 2027 (B2/B) sank below par in high-volume activity.

Ford Motor Credit Co. LLC’s new tranches (Ba2/BB+) were mixed in active trading with the short-duration notes improving but the longer duration notes continuing to lag.

Realogy Holdings Corp. 5¼% senior notes due 2030 (B2/B+) were also lagging their issue price in high-volume activity, although the notes improved from their weak break.

Outside of new issues, Bed Bath & Beyond Inc.’s 5.165% senior notes due 2044 sank more than 4 points in active trading following a sizeable earnings miss.

Ziggo and Zip

The capital markets backdrop for new issue activity in the high-yield bond market was less than supportive on Thursday, a trader said.

The major U.S. stock indexes all moved lower.

The 10-year Treasury yield, which ballooned on Wednesday in response to the release of more-hawkish-than-expected mid-December Fed minutes, failed to retreat.

In fact, said the trader, the 10-year yield actually moved incrementally higher on the day.

Higher-rated, lower-coupon speculative-grade bonds, which are sometimes traded on a spread basis, took a solid licking in response to spurting Treasury yields, the trader said, adding that interest rate-sensitive 10-year crossover bonds were down a point on the day, and in some cases more.

Lower-rated cash bonds were down ¼ to ½ points, as the market reprices, sources said.

The day's sole new issue came from VodafoneZiggo, which had been in the market overnight.

Ziggo priced approximately $2.1 billion equivalent of 10-year senior secured sustainability-linked notes (B1/B+/BB) on Thursday.

The deal included $1.525 billion of 5% notes that price at 99.03 to yield 5 1/8%. The yield printed at the wide end of yield talk (also early guidance) in the 5% area.

They were trading at 99 1/8 bid, 99 5/8 offered late Thursday, a trader said.

The dollar notes were heard to be playing to $1.5 billion of orders on Thursday morning, with a significant number of limit orders specifying yields in the range of 5 1/8% to 5¼%.

The deal also included €750 million of notes that priced at par to yield 3½%, in the middle of yield talk and early guidance, both of which were set in the 3½% area.

In the wake of Ziggo, ZipRecruiter, which is making its debut in the high-yield market, is the only announced deal expected to clear ahead of the coming weekend.

Pending official talk, the employment services company's $500 million offering of eight-year senior notes (B2/BB-/BB-) is in the market with initial guidance in the low 5% area, and expected to price Friday.

The order book was shaping up to the tune of $650 million by Thursday's close, a trader said.

Royal Caribbean under water

Royal Caribbean’s new 5 3/8% senior notes due 2027 sank under water on Thursday as a risk-off sentiment pervaded the market amid rising Treasury yields.

While the notes hovered around par early in the session, they succumbed to selling pressure as the session progressed.

The 5 3/8% notes were changing hands in the 99½ to 99 5/8 context heading into the market close, a source said.

There was about $41 million in reported volume.

Royal Caribbean priced an upsized $1 billion issue of the 5 3/8% notes at par on Tuesday.

While the notes traded up to a 101-handle on the break, they have been on a downward trajectory since then due to the general weakness in the market.

Ford mixed

Ford’s recently priced tranches were mixed after a weak break with the short-duration notes improving while the longer-duration notes continued to trade down.

Ford’s 2.3% senior notes due 2025 were straddling par after lagging their issue price on the break.

The notes were marked at 99¾ bid, par 1/8 offered early in the session. They were wrapped around par heading into the market close, a source said.

There was about $39 million in reported volume.

However, Ford’s 2.9% senior notes due 2029 continued to weaken in active trading.

The 2.9% notes were marked at 99 1/8 bid, 99½ offered early in the session and were changing hands in the 99¼ to 99½ context heading into the close, sources said.

The notes priced tight with the yield on the new offering comparable to other issues of similar duration in the capital structure, sources said.

Ford Motor Credit’s 2.9% senior notes due 2028 have been trading with a yield just shy of 2.9%

Ford priced a $1.25 billion tranche of the 2.3% notes at 99.999 and a $750 million tranche of the 2.9% notes at 99.998 in a Wednesday drive-by.

The 2.3% notes priced on the tight end of talk for a yield in the 2.35% area; the 2.9% notes priced at the tight end of talk in the 2.95% area.

While the notes played to about $10 billion in demand at one point during bookbuilding, demand waned as pricing tightened.

Realogy improves, still lags

Realogy’s 5¼% senior notes due 2030 improved after a weak break; however, the notes were still lagging their issue price.

The 5¼% notes traded in a range of 99 3/8 to par during Thursday’s session. However, they were changing hands in the 99½ to 99 5/8 context heading into the close, sources said.

The notes traded as low as 99¼ after breaking for trade on Wednesday.

Realogy priced an upsized $1 billion issue of the 5¼% notes at par in a Wednesday drive-by.

The notes priced at the tight end of the 5¼% to 5½% yield talk.

The deal was heavily oversubscribed and upsized twice – first to $900 million from $550 million and then to $1 billion.

Bed Bath & Beyond sinks

While the overall market was weak on Thursday, Bed Bath & Beyond’s 5.165% senior notes due 2044 were the major losers of the session.

The notes fell 4½ points to close the day at 77, according to a market source.

There was about $18 million in reported volume.

The notes were under pressure after a large third-quarter earnings miss.

The company reported a net loss of $276 million and revenue of $1.88 billion, a 28% year-over-year decrease, for the quarter ended Nov. 28.

The company has lowered guidance post-earnings.

OXY down 2 3/8 points

A trader was watching as the price relaxed on Occidental Petroleum Corp.’s 6.45% notes due 2036.

The bonds were moving around 2 3/8 points lower since open of business on Wednesday.

They closed out the day at around 124½ but had started Wednesday at just below 127.

The bonds track with the price of oil if only because of a hefty debt burden for the company.

The precipitous decline of oil that started in February 2020 nearly sank the company and certainly killed its ratings.

The bonds went from investment-grade to distressed practically overnight and did a deep dive over approximately one month from 128¼ to as low as 50½ from late February to March 2020.

Steadily, slowly, they’ve recovered and broke par again in early December 2020, continuing an upper trajectory until they hit a 125 to 130 range where they have been hovering since September.

The company conducted a capped tender offer for 14 notes in December, but the 6.45% notes were not part of the offer.

The notes initially came into Occidental’s debt stack through an exchange of notes originally issued by Anadarko.

Indexes

The KDP High Yield Daily index fell 24 points to close Thursday at 65.39 with the yield now 4.1%.

The index was down 12 points on Wednesday, 10 points on Tuesday and 9 points on Monday.

The CDX High Yield 30 index gained 3 basis points to close Thursday at 108.6. The index fell 48 bps on Wednesday and 7 bps on Tuesday.

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