Frontier adds; junk rally continues; Camelot higher; Carnival sinks; T-Mobile active

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 21 – The domestic high-yield primary market had one small add-on deal price during Thursday’s session.

FTAI Infra Escrow Holdings, LLC priced a $50 million add-on to its 10½% senior secured notes due June 1, 2027.

Market players had been anticipating a $3 billion deal backing the buyout of Tenneco Inc. by Apollo Global Management Inc.

However, the deal was heard to have been pushed until post-Labor Day leaving Patagonia HoldCo LLC’s $500 million offering of seven-year senior secured first-lien notes (B1/B+) the sole deal on the forward calendar.

Meanwhile, it was another strong day for the secondary space with the cash bond market rising another 3/8 to ½ point as buyers return to the space.

The ICE BofAML US High Yield index has risen more than 2 points over the past 4 sessions with returns breaking above negative 11%.

The market is reassessing recession as a base case scenario with earnings coming mostly inline or better than expected, a source said.

Camelot Return Merger Sub Inc.’s 8¾% senior secured notes due 2028 (B2/B), the first new issue since early July, was trading at a large premium to the discounted issue price.

While the broader market continued to rally, Carnival Corp.’s capital structure was again under pressure following a $1 billion equity raise.

T-Mobile US, Inc.’s senior notes were slightly weaker on Thursday after getting lifted the previous session by a Moody’s Investors Service upgrade of the company to investment grade.

Camelot at a premium

Camelot’s 8¾% senior secured notes due 2028 were putting in a strong secondary market performance with the notes trading at a premium to their deeply discounted issue price.

After dipping as low as 91¼ early in the session, the 8¾% notes reclaimed a 92-handle heading into the market close, a source said.

The yield was about 10½%.

There was $17 million in reported volume.

Camelot priced an upsized $710 million, from $600 million, issue of the 8¾% notes at 90.296 to yield 11% on Wednesday.

The leveraged buyout deal was helping to fund the Clayton, Dubilier & Rice (CD&R) buyout of building products manufacturer Cornerstone Building Brands, Inc.

The issue price came in line with price talk of approximately 90.3. The yield came in the middle of yield talk in the 11% area.

Leveraged buyout deals have underperformed the market. However, the 8¾% notes priced well wide of the B index and were a safer play than the company’s outstanding 6 1/8% senior notes due 2029, a source said.

The 6 1/8% notes are a CCC credit, only carry a company guarantee, and have a longer duration than the most recent offering.

The 6 1/8% notes were trading just shy of 69 in light volume on Thursday.

Carnival under pressure

After a strong week, Carnival’s capital structure was again under pressure on Thursday following the company’s $1 billion stock sale.

Carnival’s notes fell ½ to 2 points on Thursday.

The cruise line operator’s 10½% senior notes due 2030 were down as much as 2½ points in intraday activity.

The notes traded down to an 87-handle midsession but were lifted into the close and ended the day wrapped around 88, a source said.

The yield on the notes was just shy of 13%.

There was $47 million in reported volume, making the issue the most actively traded of Thursday’s session.

Carnival’s 6% senior notes due 2029 were relatively unchanged with the notes ending the day at 75½ for a yield of 11½%.

The 7 5/8% senior notes due 2026 fell 1½ points to 85¾ with the yield about 12 5/8%.

There was $20 million in reported volume.

Carnival’s capital structure has seen a strong rally over the past week after hitting fresh lows the previous week.

The 10½% notes hit 90 on Wednesday, the highest level for the notes since late June.

However, the notes were under pressure on Thursday as analysts weighed in on Carnival’s secondary offering with some saying the stock sale still did not give the company enough of a cushion.

T-Mobile’s upgrade

T-Mobile’s senior notes were slightly weaker in active trading on Thursday after bouncing the previous session following Moody’s upgrade of the company.

T-Mobile’s 3½% senior notes due 2031 were off about 3/8 point.

The notes returned to an 89-handle and were trading in the 89 5/8 to 89 7/8 context heading into the market close, according to a source.

The yield on the notes was just shy of 5%.

There was $31 million in reported volume.

T-Mobile’s 3 3/8% senior notes due 2029 were also off about 3/8 point to trade in the 90½ to 90¾ context heading into the market close for a yield of about 5%.

There was $18 million in reported volume.

The notes were slightly weaker on Thursday after gaining about ½ point on Wednesday on the heels of Moody’s upgrade of the company to investment grade.

The upgrade was the result of better-than-expected operating cost synergies following T-Mobile’s merger with Sprint, Prospect News reported.

S&P has also put T-Mobile’s unsecured debt on positive watch.

The notes will remain active as they switch from high-yield to investment-grade accounts, a source said.

$1 billion Wednesday inflows

The high-yield ETFs saw exceptionally large daily cash inflows of $1.03 billion on Wednesday, according to a market source.

Meanwhile the actively managed high-yield funds were flat to slightly negative on the day, sustaining $18 million of outflows on Wednesday, the source said.

Wednesday's big inflow to the ETFs moderated the negative weekly cash flows of the combined funds.

The combined high-yield bond funds, which had been tracking over $1 billion of net weekly outflows as recently as Tuesday, instead sustained $885.1 million of net outflows for the week, according to a market source citing information provided by Refinitiv Lipper.

Also of note, investment-grade bond funds sustained $3.31 billion of net outflows in the week to Wednesday's close, the market source said.

It is the seventeenth consecutive outflow from the asset class, representing a massive net drain of $80.3 billion from the dedicated investment-grade bond funds.

Indexes

The KDP High Yield Daily index gained 17 points to close Thursday at 56.25 with the yield now 6.88%.

The index was down 31 points on Wednesday.

The ICE BofAML US High Yield index rose 26.6 basis points with the year-to-date return now negative 10.741%.

The CDX High Yield 30 index gained 34 bps to close Thursday at 100.65. The index rose 43.5 bps on Wednesday and 119.5 bps on Tuesday after falling 14 bps on Monday.

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