Carnival rally fades, new notes close under water; Carvana mixed; II-VI down

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 20 – The primary market remained quiet on Friday with the forward calendar empty as volatility continued to roil risk assets.

There was no reprieve from the volatility on the last day of the May 16 week with the market opening the day strong but closing in the red with indexes again setting new lows.

While a volatile day for the secondary space, trading activity was extremely thin.

“People just want this week to be over,” a source said.

Carnival Corp.’s new 10½% senior notes due 2030 (B2/B) dominated activity in the secondary space.

While the notes extended their rally early in the session to trade at a premium to their issue price, they were dragged as the session progressed and closed underwater.

Carvana Co.’s junk bonds were mixed.

The struggling used car e-commerce company’s new 10¼% senior notes due 2030 (Caa2/CCC) attempted a rally early in the session but closed the day largely unchanged.

However, the company’s shorter-duration 5 5/8% senior notes due 2025 (Caa2/CCC) made strong gains with the notes trading with a higher yield than their longer duration counterpart.

II-VI Inc.’s 5% senior notes due 2029 (B2/B+) saw some action during Friday’s session with the notes sinking almost 3 points.

Primary eyed

The primary market remained quiet on Friday, sources said.

With the third week in May coming to a close, the active forward calendar remained empty.

Late in the May 16 week the composite spread of the Merrill Lynch US High Yield Master II Index (H0A0) crossed above 500 basis points for the first time since Nov. 4, 2020, sources noted.

With the S&P 500 stock index teetering on bear market territory, junk bond spreads were wider and cash prices were lower, a trader remarked.

The speculative-grade bond market is expected to continue to crawl into the pre-Memorial Day week ahead, according to a sellside source.

There is a backlog of investment-grade deals but high-yield is expected to stay slow, the source said.

However there remains a lot of cash to be put to work in junk, and there has been no calendar, a trader asserted on Friday.

An inventory of the past month's primary market activity quickly bears out that last assertion.

Since April 20 five issuers have priced a total of six tranches of dollar-denominated junk, raising just under $7.25 billion.

For comparison, April 20, 2021 to May 20, 2021 saw $56.4 billion in 92 tranches.

The high point of the past week in the primary came in the euro-denominated market on Tuesday when France-based work uniform supplier Elis SA priced a €300 million issue of 4 1/8% unsecured bullet notes due May 2027 at 99.447 to yield 4¼%.

Through the capital markets tumult that ensued those bonds held in and remained well above their issue price at par bid, par ½ offered on Friday, unchanged from Thursday's close, a market source said.

The deal, from a well-known issuer, came at a 25 bps market concession and played to a huge €3.3 billion order book, sources said.

But Elis might turn out to be a one-off story, an investor warned.

Carnival under water

Carnival’s 10½% senior notes due 2030 continued to dominate activity in the secondary space.

The notes extended their rally early in the session to briefly trade with a premium to their issue price.

However, they succumbed to selling pressure as the session progressed and ended the day underwater.

The 10 ½% notes were up ½ point early in the session and were marked at par ½ bid, 101 offered, a source said.

However, they quickly lost steam with the notes ending the day at 99½ bid, par offered with the notes trading into the bid.

There was $32 million in reported volume.

Carnival priced a $1 billion issue of the 10½% notes at par in a Wednesday drive-by.

The notes saw a weak break and quickly traded down to a 98-handle although a late-day rally on Thursday pushed them up to par.

The notes were weakly allocated and may have a heavy short, a source said.

Carvana mixed

Carvana’s senior notes were mixed on Friday with the company’s recently priced 10¼% senior notes due 2030 closing the day largely unchanged while the shorter duration 5 5/8% senior notes due 2025 ended the day with gains.

The 10¼% senior notes were “all over the place,” on Friday, a source said.

The notes launched the day strong alongside the broader market.

However, they also gave back their early gains as the market turned negative as the session progressed.

The 10¼% notes opened the day up 1 point to trade in the 86 to 87 context.

However, they ended the day as they ended Thursday’s session – in the 84½ to 85½ context.

The yield on the notes was just shy of 13½%.

There was $21 million in reported volume.

While Carvana’s recently priced notes continued to struggle, the company’s existing shorter-duration 5 5/8% senior notes due 2025 which priced in September 2020 were on the rise in heavy volume.

The 5 5/8% notes gained 2½ points to close the day at 79, a source said.

The notes were now yielding 13 5/8%.

There was $18 million in reported volume.

With the fundamentals of the company in question, the short-duration notes were a better play for those willing to take on the risk, a source said.

II-VI down

II-VI’s 5% senior notes due 2029 were down in active trading on Friday although with no clear catalyst to the trading activity.

The 5% notes sank 3 points.

The notes launched the day on a 92-handle but losses mounted as the session progressed and the notes closed the day the 90 to 90½ context.

The yield on the notes was just shy of 6 5/8%.

There was $9 million in reported volume.

Fund flows

High-yield ETFs saw a healthy $460 million of daily cash inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high yield funds were negative on the day, sustaining $214 million of outflows on Thursday.

News of those daily flows trails a Thursday report that the combined funds saw $2.61 billion of net outflows in the week to the Wednesday, May 18 close, according to Refinitiv-Lipper.

That extends year-to-date outflows to $36.4 billion, according to the market source.

The dedicated high-yield funds have now sustained $49.6 billion of net outflows since the beginning of 2021, completely unwinding the record $44.9 billion of inflows of 2020, the source added.

Indexes

The KDP High Yield Daily index rose 8 points to close Friday at 56.25 with the yield now 6.92%.

The index was down 6 points on Thursday, 47 points on Wednesday, 48 points on Tuesday and 2 points on Monday.

The index posted a cumulative loss of 95 points on the week.

The CDX High Yield 30 index fell 27 bps to close Friday at 99.07.

The index inched up 3 bps on Thursday, plunged 132.8 bps on Wednesday, gained 33 bps on Tuesday, and fell 34 bps on Monday.

The index posted a cumulative loss of 158 bps on the week.

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