Tellurian outlines junk offer; secondary falls in light action; Ford shifts down; DirecTV active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 29 – Tellurian Inc., a new junk bond deal which has been watched for over the last few weeks, was formally introduced in the Morning market.

Meanwhile, it was a quiet session in the secondary space with trading activity at a crawl as the market extended its losses from the previous week.

The cash bond market fell 5/8 point on Monday after dropping 1 point the previous week as the market reassessed its expectations for the Federal Reserve’s rate hike schedule.

The ICE BofAML US High Yield index’s year-to-date returns again broke below negative 10% after narrowing losses to negative 7½% as recently as Aug. 16.

However, few names were active amid the downturn in the market with large, liquid issues dominating the tape.

Ford Motor Co.’s recently priced 6.1% senior green notes due 2032 (Ba2/BB+) fell to their lowest level since pricing in mid-August as the BB index continued to widen.

DirecTV Holdings LLC and DirecTV Financing Co. Inc.’s 5 7/8% senior secured notes due 2027 (Ba3/BB) were also lower in active trading.

Cruise line operators were under pressure as rate and recession concerns again weighed down the market.

Royal Caribbean Group’s recently priced 11 5/8% senior notes due 2027 (B3/B) again sank below par after holding above amid Friday’s selling pressure.

Carnival Corp.’s 5¾% senior notes due 2027 (B3/B) were also down in active trading.

Tellurian

In a deal that began being telegraphed to the market earlier in the month, Tellurian Inc. officially launched a $1 billion notes/warrants project financing deal on Monday.

The public offer will be comprised of units that include an 11¼% senior secured note due 2027 with attached warrants for the company's common stock.

Initial price talk has the notes coming at an issue price in the 95.5 area. The strike price of the warrants will be calculated at a 20% premium to the 20-day volume-weighted average share price.

The deal officially kicks off on a conference call with investors set for 11 a.m. ET on Wednesday.

Due in part to a huge rally in natural gas prices set in train by ongoing armed conflict in the Ukraine, and an ensuing supply disruption in Europe, the deal has already generated a large amount of interest among investors, sources say.

The units are set to price in the post-Labor Day week. However, timing could 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.

Ford’s new low

Ford’s recently priced 6.1% senior notes due 2032 hit their lowest level on Monday since pricing in mid-August.

The notes were down 1 point to a 98-handle.

They were changing hands in the 98 to 98½ context throughout the session, a source said.

The notes were yielding about 6.3%.

There was $14 million in reported volume.

The 6.1% notes have struggled since the $1.75 billion issue, which priced at par on Aug. 16, hit the aftermarket.

The notes have spent the majority of their time in the secondary space on a 99-handle.

They priced at the tail end of a three-week risk rally sparked by optimism about a dovish pivot from the Federal Reserve.

Sources that questioned the market’s dovish pivot interpretation of the Federal Reserve expected the notes to struggle and the BB index to widen.

DirecTV down

DirecTV’s 5 7/8% senior secured notes due 2027 were down in active trading on Monday with BB credits again under pressure amid renewed rate risks.

The 5 7/8% notes fell 7/8 point to close the session at 93, according to a market source.

The notes were carrying a yield of about 7½%.

There was $11 million in reported volume.

The 5 7/8% senior notes due 2027 is a $3.7 billion issue that tends to trade even when the broader market illiquid.

Recession indicators

Cruise lines were again underperforming as rate and recession fears again took hold of the market.

Royal Caribbean’s recently priced 11 5/8% senior notes due 2027 again sank below par.

The notes were trading on a 99-handle in light volume.

They stood poised to close the day at 99½ with the yield now 11¾%, according to a market source.

While Royal Caribbean is a weak credit, the notes’ hefty coupon drove demand with the $1.25 billion issue, which priced at par on Aug. 15, trading as high as 102 after breaking for trade.

While the 11 5/8% notes briefly dipped below par early last week as the market reassessed its dovish pivot narrative, they closed Friday on a par-handle.

Carnival’s 5¾% notes due 2027 underperformed the market with the notes falling 1½ points to close Monday at 80 3/8, according to a market source.

The yield on the notes was about 11½%.

There was $11 million in reported volume.

Cruise lines have become de facto recession indicators in the secondary space and the market is once again expressing concern the Federal Reserve rate hike schedule will throw the economy into a recession.

Friday fund flows

The dedicated high-yield bond funds saw $243 million of net daily outflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $323 million of outflows on the day.

Actively managed high-yield funds were positive on the day, posting $80 million of inflows on Friday, the source said.

In the most recent week on record the combined funds saw $4.57 billion of net outflows in the week to the Wednesday, Aug. 24 close, the biggest outflow since the week to June 15, and the 11th-largest outflow on record, according to the market source.

Indexes

The KDP High Yield Daily index fell 32 points to close Monday at 55.53 with the yield now 6.99%.

The index posted a cumulative loss of 103 points the previous week.

The ICE BofAML US High Yield index sank 58.9 basis points with the year-to-date return now negative 10.138%.

The index posted a cumulative loss of 91.2 bps the previous week.

The CDX High Yield 30 index fell 55 bps to close Monday at 99.5.

The index posted a cumulative loss of 114 bps the previous week.

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