Morning Commentary: Yum! notes rocket in trading; Carnival whispered at 12½% at discount

By Paul A. Harris

Portland, Ore., March 31 – 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 Corp. and Carnival plc 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.

The dollar-denominated notes were initially talked with a 12½% coupon at a discount of 98 to 99.

The market initially heard that the offer would be in the market overnight and price on Wednesday.

However, demand for the Carnival bonds is heard to be intense, and an upsize of as much as $1 billion is expected, according to a New York-based bond trader, who added that the deal is being driven by as much as $2.75 billion of reverse inquiry. Hence the timeline may be subject to review.

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

Yum! rockets

Assisting Carnival in its decision to make a Tuesday pass at the market was Monday's execution of a single-B offering from Yum! Brands, Inc. 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.

Those notes subsequently traded as high as 105 bid but fell back to 104¾ bid by mid-morning Tuesday, implying a 6.3% yield, a trader said.

Away from the market's only recent print, there was activity Tuesday morning in bonds from the chemical sector, including issues of Chemours Co. and Tronox Chemicals Co., the trader said.

Junk opened Tuesday unchanged, sources said.

With the Dow Jones industrial average up 0.5% in volatile trading at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.2%, or 15 cents, at $77.54 per share.

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.

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