Royal Caribbean, Ford losses mount in junk trading; Bausch mixed on exchange offer

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 31 – The final day of August 2022 passed in relative quiet on the new issue bourse.

Meanwhile, the secondary space saw its fourth consecutive day of losses with ETF selling continuing to drag down the market, a source said.

The cash bond market was off another 1/8 to ¼ point with the market wiping out the gains made earlier in the month and ending August with a monthly loss.

There was an uptick of activity in the secondary space with end-of-month repositioning and topical news continuing to drive trading activity.

Losses continued to mount for Ford Motor Co.’s recently priced 6.1% senior green notes due 2032 (Ba2/BB+) and Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B), which both hit new lows during Wednesday’s session.

Bausch Health Cos. Inc.’s capital structure was mixed after the struggling pharmaceutical company launched a $4 billion exchange offer for 11 of its senior notes.

Bausch’s 9% senior notes due 2025 and 9¼% senior notes due 2025 made large gains on the exchange offer with the notes given acceptance priority.

However, other notes included in the exchange offer with lower acceptance priority saw large losses.

Primary

For an upcoming new issue, Tellurian Inc. did a Wednesday morning investor conference call for its $1 billion notes/warrants project financing deal.

The call went well, according to a source who participated.

The deal is comprised of units that include an 11¼% senior secured note due 2027 (initial talk 95.5 area), with attached warrants for the company's common stock.

The units are set to price in the post-Labor Day week. However, timing could still be accelerated, according to an informed source.

Sole bookrunner B. Riley Securities, Inc. makes its debut at the helm of a public high-yield deal with this offer.

In Europe, with workers in the financial markets returned from summer holiday the investment-grade new issue market has reopened, however there was no Wednesday news from the European speculative-grade primary market.

One deal, a dollar-denominated offering of senior secured sustainability-linked notes (B2/B) from NES Fircroft, is being pitched to investors in a $300 million Nordic transaction from deal-runners ABG Sundal Collier and Pareto Securities.

The U.K.-based staffing solutions company is issuing via its Norway-based subsidiary NES Fircroft Bondco AS.

Market sources turned out empty pockets on Wednesday when canvassed for tips on previously unannounced deals staging for the post-Labor Day new issue market.

As to whether post-Labor Day new deal volume will be heavy, moderate or merely a continuation of summer's extremely sluggish pace remains to be seen, a sellside source said.

One data point that surfaced on Wednesday characterizes just how rocky things have gotten in junkland.

Only 8.5% of the high-yield universe currently trades above par, whereas 78% of that universe was trading above par at the start of the year, according to a market source who was citing information in a report that JPMorgan made to its clients.

“The market has taken some blows but it's certainly not down on the canvas,” a portfolio manager asserted on Wednesday, noting that any measure of high-yield's resilience must factor in Treasury yields which have doubled since the beginning of the year.

New low

Losses continued to mount for Ford’s 6.1% senior notes due 2032 and Royal Caribbean’s 11 5/8% senior notes due 2027, which both hit new lows during Wednesday’s session.

Ford’s 6.1% senior notes fell 5/8 point to a 97-handle.

The notes were changing hands in the 97 3/8 to 97 5/8 context throughout the session, a source said.

The yield climbed to 6.4%.

The notes have fallen 2 points on the week as BB credits have come under pressure amid renewed expectations for rising rates.

Royal Caribbean’s 11 5/8% notes due 2027 continued to crack under the selling pressure in the market.

The 11 5/8% notes sank another 1 point with the notes poised to close Wednesday at 98½.

The yield on the notes was now about 12%.

Royal Caribbean’s 11 5/8% senior notes have fallen 2 points over the past week as recession fears once again sparked selling in the market.

Bausch mixed

Bausch’s capital structure was mixed after the struggling pharmaceutical company launched an exchange offer for 11 series of notes.

Bausch’s 9% senior notes due 2025 and 9¼% senior notes due 2025 made large gains on the news.

However, other notes included in the exchange saw large losses.

“It’s to be expected,” a source said with the 9% notes and 9¼% notes given first acceptance priority.

The 9% notes jumped 7½ points to close Wednesday at 65.

The 9¼% notes jumped 3 points to close the day at 58¼.

However, Bausch’s 7¼% notes due 2025 fell 5½ points to close the day at 97¼.

The 7% senior notes due 2028 fell 4¾ points to 38¼.

The 6¼% notes due 2029 sank 4 points to 38.

Bausch launched a $4 billion exchange offer with notes tendered in exchange for new 11% first-lien secured notes due 2028, 14% second-lien secured notes due 2030, and 9% senior secured notes due 2028. (See related article in this issue.)

Bausch’s notes which suffered large losses on Wednesday were far down on the priority acceptance list.

While the exchange offer will move participants further up the capital structure, it will prime over those left holding Bausch’s unsecured notes, a source said.

$810 million Tuesday outflows

The dedicated high-yield bond funds sustained $810 million of daily net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $520 million of outflows on the day.

Actively managed high-yield funds sustained $290 million of outflows on Tuesday, the source said.

With only Wednesday's daily fund flow numbers remaining to go into the tally the combined funds are tracking $2 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 27 points to close Wednesday at 54.97 with the yield now 7.2%.

The index was down 29 points on Tuesday and 32 points on Monday.

The CDX High Yield 30 index fell 20 points to close Wednesday at 98.75.

The index was down 56 basis points on Tuesday and 55 bps on Monday.

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