Junk bonds open week with losses; Ford, Royal Caribbean under water; Charter down again

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 22 – The primary market sat idle on Monday as risk-aversion came roaring back to take hold of the global capital markets.

The fortnight leading up to the extended Labor Day holiday weekend is typically a quiet period in the high-yield bond market, especially the new issue market, as syndicate workers head for mandatory two-week vacations, and other market participants stage for holidays ahead of the beginning of the school year.

With interest rates on the march to a relentless drumbeat of negative financial-, geopolitical- and climate-related headlines, the pre-Labor Day 2022 interval won't likely break with that tradition, a trader said on Monday.

Meanwhile, the secondary space opened the week with losses with the cash bond market down ¾ point as the market reassessed the Federal Reserve’s rate hike schedule.

Rate-sensitive names and lower quality credits were again taking the brunt of the selling pressure as the market again priced in more aggressive rate hikes and a greater probability of a recession.

While the market was under pressure, trading volume remained thin with late August illiquidity setting in.

The strong performance of several recent deals came to a halt amid the downturn in the market.

Ford Motor Co.’s 6.1% senior green notes due 2032 (Ba2/BB+) and Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) sank below their issue prices in active trading.

Charter Communications, Inc. subsidiary CCO Holdings, LLC’s 6 3/8% senior notes due 2029 (B1/BB-) were also driven further below par amid the weak market conditions.

Outside of recent issues, Bausch Health Cos. Inc.’s junk bonds (Caa2/CCC) were under pressure following news of an internal asset transfer and the hiring of advisers to explore strategic alternatives.

Under water

Several recent deals succumbed to the selling pressure in the market and sank below issue prices on Monday.

Ford’s 6.1% senior notes due 2032 tumbled more than 1½ points to a 98-handle.

The notes were changing hands in the 98½ to 98¾ context heading into the market close.

There was $22 million in reported volume.

The notes closed last Friday wrapped around par.

Ford’s 6.1% notes are rate-sensitive, a source said.

The notes were expected to widen alongside the BB index, which had hit a recent tight shortly before Ford priced the $1.75 billion issue at par on Aug. 16.

Royal Caribbean’s 11 5/8% notes gave back all of the gains made since hitting the secondary space and closed Monday under water.

The 11 5/8% notes fell 1 3/8 points to a 99-handle.

The notes were changing hands in the 99¼ to 99¾ context heading into the market close, according to a market source.

There was $18 million in reported volume.

While Royal Caribbean is a weak credit, the hefty yield on the cruise line operator’s latest offering drove large gains in its initial days in the secondary space.

The notes, which priced at par, traded up to 102 after breaking for trade on Aug. 15.

The notes held onto a 101-handle even as market conditions began to weaken late last week.

Monday’s session marked the first time the notes have traded below their issue price since hitting the secondary space.

CCO falls further

CCO Holdings’ 6 3/8% senior notes due 2029 fell further below par in active trading on Monday.

The notes were down another 1 point to close Monday on a 97-handle.

The notes were changing hands in the 97¼ to 97¾ context throughout the session, according to a market source.

The yield rose to about 6 7/8%.

Monday’s level marked the lowest for the notes since the $1.5 billion issue priced at par on Aug. 4.

Bausch seeks alternatives

Bausch’s senior notes continued their downward trend in active trading after the company announced an internal asset transfer related to its controversial spinoff of Bausch + Lomb and that it had hired restructuring advisers.

Bausch’s 9¼% senior notes due 2026 fell 3 points to close the day at 66 5/8 with the yield about 23½%.

There was $16 million in reported volume.

The 9% senior notes due 2025 fell 2¾ points to close the day at 70¼ with the yield 22 1/8%.

There was $13 million in reported volume.

The 5% senior notes due 2028 were also down 2¾ points to close the day at 47 with the yield 22 3/8%.

The notes were under pressure after Bausch announced that it had hired Houlihan Lokey and White & Case LLP for assistance in exploring potential strategic alternatives.

The news came as the struggling pharmaceutical company announced an internal asset transfer related to the spinoff of its eye health products unit Bausch + Lomb.

Bausch Health announced that it had transferred 38.6% of Bausch + Lomb shares to an unrestricted subsidiary, leaving 50.1% of shares with a restricted subsidiary, according to a company news release.

ETFs: $1.37 billion outflows

High-yield ETFs sustained a massive $1.374 billion of daily outflows on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were positive on the day, posting $105 million of inflows on Friday.

Indexes

The KDP High Yield Daily index dropped 81 points to close Monday at 56.07 with the yield now 6.81%.

The index posted a cumulative loss of 71 points on the week last week.

The ICE BofAML US High Yield index sank 74.5 bps with the year-to-date return now negative 9.385%.

The index posted a cumulative loss of 96.3 bps on the week last week.

The CDX High Yield 30 index sank 84 bps to close Monday at 100.3.

The index posted a cumulative loss of 199 bps on the week last week.

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