Junk primary returns with Royal Caribbean, Sensata, Darling drive-bys; Avaya falls further

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 15 – Three issuers priced single-tranche dollar-denominated drive-by junk bond deals on Monday for a combined face amount of $2 billion.

Meanwhile, it was an uneventful day in the secondary space with the cash bond market either side of unchanged in light volume following a three-week rally that saw spreads tighten by almost 100 basis points.

All eyes were on the primary market as the secondary waited for new paper to jolt activity in the space.

Royal Caribbean Group’s 5 3/8% senior notes due 2027(B3/B), which rank among the worst performing deals of 2022, gave back some of the gains made in the recent market rally on the back of a Monday offering.

Darling Ingredients, Inc.’s 6% senior notes due 2030 (Ba3/BB+), which rank among the best performing deals of 2022, were weaker following the pricing of its add-on.

Avaya Holdings Corp.’s 6 1/8% senior secured notes due 2028 (Caa2/CCC-) continued to fall in active trading on going concern warnings.

Active Monday

Executions were sharp on the $2 billion of new paper that priced on Monday, with all three deals pricing at the tight or rich ends of talk, and inside of initial guidance.

Royal Caribbean Group priced the session's sole upsized deal, a $1.25 billion issue (from $1 billion) of five-year senior notes (B3/B) at par to yield 11 5/8%.

It was oversubscribed, with around $1.5 billion of orders at noon ET on Monday, according to an investor who participated.

Bondholders who elected to refinance the cruise line's upcoming maturities played a significant part in the transaction, the investor said.

The dealer had the new Royal Caribbean Cruises Ltd. 11 5/8% notes due August 2027 at par ¾ bid, 101½ offered at the Monday close, according to the investor who added that away from the dealer the new notes were par ¾ bid, 102¼ offered.

Monday's drive-by deal marks the seventh time that Royal Caribbean has raised cash in the junk bond market since the onset of the coronavirus pandemic in early 2020.

Prior to the Monday drive-by the company's most recent placement of high-yield bonds came on Jan. 4, 2022 when it priced $1 billion of 5 3/8% senior bullet notes due July 2027.

Elsewhere on Monday Sensata Technologies BV priced a $500 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5 7/8%.

And Darling Ingredients, Inc. priced a $250 million add-on to its 6% senior notes due June 15, 2030 (Ba3/BB+/BB+) at 102 to yield 5.678%.

Meanwhile Solenis set a Tuesday conference call for the Olympus Water US Holdings Corp./Cheever Escrow Issuer $325 million offering of five-year senior secured notes (B2).

Initial guidance has the deal coming to yield in the high-7% to low-8% area.

The notes are expected to price on Wednesday (see related stories in this issue).

Royal Caribbean lower

Royal Caribbean’s 5 3/8% senior notes due 2027 gave back some of the gains made in the recent rally as the market awaited the cruise line operator’s latest offering.

The 5 3/8% notes fell 2 points to return to an 82-handle.

They were changing hands in the 82½ to 82¾ context heading into the market close with the yield about 9 7/8%, according to a market source.

While volume was light, the 5 3/8% notes traded up to close Friday on an 84-handle.

The notes opened last Monday wrapped around 79.

Royal Caribbean’s 5 3/8% notes rank among the worst performing deals of 2022 with the notes trading to an all-time low of 68 in mid-July.

The cruise line operator priced a $1 billion issue of the 5 3/8% notes at par in early January.

However, the notes have been on a steady uptrend as the market reassessed recession forecasts and the ability of companies like Royal Caribbean to access sustainable refinancing capital.

Darling in focus

Darling’s 6% senior notes due 2030 were weaker in heavy volume on Monday after the company priced an add-on to the issue.

The 6% notes fell 1 point to a 102-handle.

They were changing hands in the 102½ to 102¾ context in the late afternoon, according to a market source.

The 6% notes closed the previous week on a 104-handle.

Darling’s 6% notes are among the best performing deals of 2022 with the notes one of a handful to trade above issue price.

While the notes slid as low as 98 amid the heavy market conditions of mid-June, they have held above par for the majority of their time in the secondary market.

The notes traded as high as a 104-handle in late July following the post-Federal Reserve announcement market surge.

The agri-food company priced a $750 million of the 6% notes at par in May.

Avaya sinks further

Avaya’s 6 1/8% senior secured notes due 2028 continued their downfall in active trading on Monday.

The notes sank another 2 points to a 41-handle.

They were trading in the 41¼ to 41½ context during Monday’s session, according to a market source.

The notes were yielding about 25¾%.

The 6 1/8% notes have plummeted 16 points since the company announced it had substantial doubt about its ability to continue in its preliminary earnings release on Aug. 9.

Indexes

The KDP High Yield Daily index gained 3 points to close Monday at 57.71 with the yield now 6.33%.

The index posted a cumulative gain of 55 points on the week last week.

The ICE BofAML US High Yield index gained 18.3 bps with the year-to-date return now negative 7.344%.

The index posted a cumulative gain of 86.1 bps on the week last week.

The CDX High Yield 30 index slid 9 bps to close Monday at 103.04.

The index posted a cumulative gain of 171 bps on the week last week.

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