NCL prices in choppy waters; secondary falls on CPI report; short-term notes ‘get socked’

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 10 – One drive-by deal sailed through choppy high-yield waters to land new paper.

Norwegian Cruise Line Holdings Ltd. chose a tumultuous Thursday, but had a receptive primary market for its $1.6 billion deal.

Meanwhile, it was an “ugly” day in the secondary space as the 10-year Treasury yield shot past 2% following the latest Consumer Price Index report, sources said.

The CPI annual increase of 7.5%, which came in greater than the 7.2% expected, sent the Treasury market into a tailspin.

The data coupled with hawkish comments from Federal Reserve officials reignited the sell-off in high yield with the market down about 1 point.

Short-duration, low-coupon issues in the BB index were among the hardest hit.

While several recent leveraged-buyout deals followed the market lower, demand was increasing for ‘yieldy’ paper, a source said.

Medline Industries’ 5¼% senior notes due 2029 (Caa1/B-/B-), athenahealth’s (Minerva Merger Sub, Inc.) 6½% senior notes due February 2030 (Caa2/CCC/CCC+), and Condor Merger Sub, Inc.’s (McAfee Corp.) 7 3/8% senior notes due 2030 (Caa2/CCC+) were all down about 1 point alongside the broader market.

However, PMHC II, Inc.’s (Prince International Corp.) 9% senior notes due 2030 (Caa2/CCC+) were holding up well despite the selling pressure in the junk space.

Carnival Corp.’s and Royal Caribbean Cruises Ltd.’s junk bonds also followed the market lower in high-volume activity.

However, Norwegian Cruise Lines’ 10¼% senior notes due 2026 bucked the trend with the notes gaining more than 3 points to their take-out price.

Exchange-traded funds were a driving force of the selling pressure as retail money continued to leave the space.

High-yield mutual and exchange-traded funds had their fifth consecutive week of multibillion-dollar outflows with $1.962 billion exiting the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

Cruise line paper

In the primary, Norwegian Cruise Line completed the sole dollar-denominated junk deal to clear the market on a volatile Thursday in the U.S. capital markets.

The Miami-based cruise company priced $1.6 billion of high-yield notes in two tranches.

The drive-by deal included $1 billion of 5 7/8% five-year senior secured notes (B1/B+) and $600 million of 7¾% seven-year senior unsecured bullet notes (Caa1/B-).

Both tranches came at par, at the tight ends of talk.

The deal played to heavy demand, according to a sellside source who added that it attracted over $7 billion of orders across both tranches, with an approximately even split between the secured and unsecured notes.

‘Ugly’

It was an “ugly” day in the secondary space with the market down about 1 point following the latest Consumer Price Index report and hawkish comments from Federal Reserve officials, a source said.

The CPI number was “shocking,” a source said, with the annual increase of 7.5% coming in well over the 7.2% expected.

The 10-year Treasury yield climbed as high as 2.057% before closing the day at 2.033%.

However, the steepest climbs were in the two- and three-year Treasury notes.

The rising rates caused short-duration, double-BB credits to “get socked,” a source said.

Ball Corp.’s 2 7/8% senior notes due 2030 (Ba1/BB+) were a case in point with the notes marked at 91 bid, 92 offered on Thursday after trading above par a few months ago, a source said.

The issue made history when it priced at par in August 2020 for being one of the few junk-rated deals to price with a 2-handle in the past two decades.

While there was broad selling in the market on Thursday, demand was increasing for higher coupons amid the higher rate environment.

Prince International’s recently priced 9% senior notes due 2030 continued to hold onto a 101-handle despite the heaviness in the market.

They were marked at 101 bid, 101½ offered heading into the market close.

The $756 million issue priced at par on Feb. 3.

LBO deals fall

After rising with the broader market the past two sessions, several recent LBO deals returned to their previous levels in high-volume activity.

McAfee Corp.’s 7 3/8% senior notes due 2030 fell about 1½ points.

They were holding at 98½ bid, 99 offered early in the session but sank as selling accelerated into the close, sources said.

The notes were changing hands in the 97¾ to 98¼ context heading at the end of the day.

There was $31 million in reported volume.

The notes rose to a 99-handle as the market improved over the past two sessions.

Medline’s 5¼% senior notes due 2029 fell 1 point to a 96-handle. They closed the day at 96½, according to a market source.

There was about $32 million in reported volume.

athenahealth’s 6½% senior notes due February 2030 also dropped 1 point to close the day at 98. They were also on the rise over the past two sessions.

McAfee, athenahealth, and Medline are among the largest LBO deals in recent history for the high-yield market.

The notes have struggled under current market conditions with the coupons low for the credit tier, sources said.

Deals from heavily leveraged issuers that weren’t refinancings also tend to underperform, a source said.

Cruises down

Carnival’s and Royal Caribbean’s junk bonds were among the slew of issues to drop more than 1 point during Thursday’s session.

Carnival’s 6% senior notes due 2029 sank 1¼ points to close the day at 97¾, according to a market source.

There was more than $50 million in reported volume.

Carnival’s 5¾% senior notes due 2027 also fell about 1 point to 97¾. There was $30 million in reported volume.

Royal Caribbean’s 5 3/8% senior notes due 2027 sank 1½ points to close the day at 97 7/8. There was $27 million in reported volume.

The large, liquid issues are high-beta and were moving with the market, a source said.

However, Norwegian Cruise Line’s 10¼% senior notes due 2026 bucked the trend with the notes rising more than 3 points to 116¾ in light volume, according to a market source.

The notes were trading up to their take-out price with Norwegian planning to redeem the notes with proceeds from its latest offering.

Indexes

The KDP High Yield Daily index sank 37 points to close Thursday at 63.08 with the yield now 5.02%. The index gained 13 points on Wednesday and 4 points on Tuesday after sinking 15 points on Monday.

The CDX High Yield 30 index shifted 84 basis points lower to close Thursday at 105.85.

The index gained 39 bps on Wednesday, 18 bps on Tuesday and 4 bps on Monday.

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