Carnival on deck; Yum! skyrockets; Envision Healthcare tanks; BWAY drops on earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 31 – The domestic high-yield primary market saw more action on Tuesday, although the deal that surfaced was far from typical.

Carnival Corp. and Carnival plc announced plans to price a $3 billion equivalent offering of three-year first-priority senior secured notes (existing ratings Baa1/BBB).

While the company is investment grade, the deal will price off of the high-yield desk. It was heard to be playing to intense demand, which included distressed-debt accounts.

Meanwhile, new paper and recent fallen angels dominated activity in the secondary space. Yum! Brands, Inc.’s 7¾% senior notes due 2025 (B1/B+), the first new deal in almost one month, skyrocketed in high-volume activity.

Envision Healthcare Corp.’s 8¾% senior notes due 2026 tanked 21 points in active trading with the market losing confidence in the company’s ability to stay afloat.

BWAY Holding Co.’s senior notes were also trading off after disappointing earnings.

Carnival eyed

After spending a month in the deep freeze, the high-yield new issue market's lights blinked on for a second straight day on Tuesday.

However, Tuesday's offer du jour is not your garden variety junk bond deal, sources say.

Carnival came with a $3 billion equivalent offering of three-year first-priority senior secured notes (existing ratings Baa1/BBB), expected to include a €300 million minimum tranche.

The notes will be priced on the high yield desk.

Initial talk has the dollar-denominated notes eyed with a 12½% coupon, at a discount of 98 to 99.

Demand for the Carnival bonds is heard to be intense, a trader said late Tuesday. The buzz in the market has the books at $6.5 billion, and an upsize of as much as $1 billion is expected.

The deal is being driven by as much as $2.75 billion of reverse inquiry, a bond trader said early in the day.

High-yield accounts and distressed debt accounts are lined up to get in on the deal, which is expected to be a blowout, the trader said, adding that distressed accounts are attempting to position themselves as anchor orders.

Notwithstanding the high-yield execution, the bonds are expected to be traded on the investment-grade desk, a trader said.

Yum! sets the table

Assisting Carnival in its decision to make its pass at the market was Monday's execution of a single-B offer from Yum! Brands and its subsequent performance in the secondary market, traders say.

On Monday, the Louisville, Ky.-based fast food company priced an upsized $600 million (from $500 million) issue of senior notes due April 2025 (B1/B+) at par to yield 7¾%, in a drive-by.

The yield printed at the tight end of the 7¾% to 8% yield talk and was heard to be playing to orders in excess of $3.5 billion at that guidance.

Yum! skyrockets

The market was hungry for new paper and the demand skyrocketed Yum! Brands newly priced 7¾% senior notes due 2025 in the secondary space.

The 7¾% senior notes traded in a range of 104 to 105½ during Tuesday’s session with the final prints between 104¾ and 105 3/8, a market source said.

The mid-point of that trade implied a yield of 6¼% to 6.3%.

With more than $99 million in reported volume, the deal was the most actively traded during Tuesday’s session.

The deal from the Louisville, Ky.-based fast food company was the first to price since March 4.

While the deal priced tight, pricing was significantly wider than what the market had become accustomed to before it was rocked by coronavirus-induced volatility.

Pricing was also far wider than Yum!’s last pass at the high-yield market in September 2019 when the company priced an $800 million offering of 30-year notes at par with a coupon of 4¾%.

Yum!’s new deal sparked activity in the 4¾% senior notes, which jumped 3½ points to 95½ on Tuesday, according to a market source.

Envision tanks

Envision Healthcare’s 8¾% senior notes due 2026 tanked in high-volume activity on Tuesday with the market losing confidence in the hospital-based physician group’s ability to stay afloat.

The 8¾% notes sank 21-points during Tuesday’s session.

They started the day on a 36-handle and closed the day trading in the 23½ to 24 context with a yield of more than 46%, a market source said.

The notes saw more than $24 million in reported volume, which is more than 7x their trading average, a source said.

Envision recently drew down the full amount from its revolving credit facility.

The notes were trading like the market was expecting the company to go under, the source said.

BWAY’s earnings

BWAY’s senior notes were trading off in decent volume on Tuesday after the packaging company announced disappointing earnings.

BWAY’s 7¼% senior notes due 2025 dropped 11¼ points to 78½, a market source said. The notes saw about $15 million in reported volume.

The 5½% notes due 2024 dropped 5½ points to 92 with about $10 million in reported volume.

The 5½% notes are secured, which is why they were holding up better than their unsecured counterpart, a source said.

BWAY’s notes were trading off following a large fourth-quarter earnings miss.

BWAY reported revenue of $853 million for the fourth quarter, which missed expectations by as much as 7%.

The company announced EBITDA of $122 million, which fell far short of analyst expectations for an EBITDA of $150 million to $155 million, according to a market source.

$1.685 billion Monday inflows!

The dedicated high-yield bond funds saw $1.685 billion of cash inflows on Monday, market sources said.

Actively managed high-yield funds saw a whopping $1.15 billion of inflows on the day.

High-yield ETFs saw $570 million of inflows on Monday, the source said.

The combined funds are tracking $4.2 billion of inflows on the week that will conclude with Wednesday's close, according to the market source, who added that if indeed a positive weekly new fund flows number materializes for the present week it will terminate a five-week run of outflows amounting to $19.4 billion.

Indexes mixed

Indexes were mixed on Tuesday after launching the week on strong footing.

The KDP High Yield Daily index gained 50 bps to close Tuesday at 61.51 with the yield now 8.06%.

The index was up 61 bps on Monday.

The CDX High Yield 30 index dropped 156 bps to close Tuesday at 93.58. The index gained 18 bps on Monday.

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