Junk primary revives; Ford active, Embecta sinks on new offering; Carnival losses mount

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 23 – The lights came up in the high-yield new issue market on Wednesday as three single-tranche issuers raised a total of $2.3 billion, the biggest day in the primary market in well over a month.

Ford Motor Credit Co. LLC priced a $1.5 billion issue of five-year senior bullet notes (expected ratings Ba2/BB+/BB+); Owens & Minor, Inc. priced an upsized $600 million issue of eight-year senior notes (B2/B/BB-); and Embecta Corp. priced a $200 million issue of 6¾% eight-year senior secured notes (Ba3/B+).

The new deal activity sparked activity in the secondary space on another weak day for the market, which was down 1/8 to 3/8 point.

While there were buyers in the space with offers-wanted-in-competition lists circulating, it did not result in much activity with sellers reluctant to step forward, a source said.

Activity focused on the new paper and the capital structures of the issuers, which were weaker in the wake of the new offerings.

Ford’s capital structure was active with several issues declining on the heels of the fresh paper.

Embecta’s 5% senior secured notes due 2030 (Ba3/B+) were among the major losers of the session with the notes dropping almost 4 points on the heels of Wednesday’s offering.

Carnival Corp.’s 6% senior notes due 2029 (B2/B) continued their downward trend as crude oil futures continued to gain.

Primary revives

In a freshly reactivated junk primary market, Ford Motor Credit priced a $1.5 billion issue of 4.95% five-year senior bullet notes (expected ratings Ba2/BB+/BB+) at 99.987 to yield 4.95%, on top of yield talk, and inside of initial guidance in the 5¼% area.

The issue was priced on the investment-grade syndicate desk.

At the conclusion of a roadshow Owens & Minor priced an upsized $600 million issue (from $500 million) of eight-year senior notes (B2/B/BB-) at par to yield 6 5/8%.

The yield printed at the tight end of yield talk in the 6¾% area. Initial guidance was in the 7% area.

The deal, which saw significant reverse inquiry, was heard to be playing to $3 billion of demand when books closed, a sellside source said.

It initially saw a strong break and traded as high as 101¼ before settling down to par 5/8, a source said.

And Embecta Corp. priced a $200 million issue of 6¾% eight-year senior secured notes (Ba3/B+) at 98.517 to yield 7% in drive-by.

The yield printed in the middle of yield talk in the 7% area, but wide to initial guidance in the high-6% area.

They were the first deals to price this week, and the burst of activity satisfied the sellside source that the dealers don't seem to be attempting to time the market.

Heading into the Wednesday session the major European stock indexes and U.S. equity futures were lower, signaling that it would likely not be a strong open in the United States, the source recounted.

Also, on the previous day the market learned that the high-yield ETFs had sustained their biggest daily outflow, ever, disgorging a total of $2.26 billion on Monday (with HYG accounting for over half of that total).

There was heaviness in the high-yield market on Wednesday morning, on the heels of that outflow news, the sellsider said.

Given that combination of news – big outflows and an unpromising open in the stock market – dealers might reasonably have been expected to continue sitting on their hands, on Wednesday, but instead brought the biggest volume of business the market has seen in over six weeks, the source remarked.

“It looks like when they're ready to bring a deal they'll bring it. And that makes sense given that the real money accounts continue to say they have cash to put to work, and their preference is to put it to work in new issues,” the sellsider said.

Wednesday was the biggest day in the high-yield primary market since Feb. 3, when $3.98 billion priced in four tranches.

It was the first day to top the $1 billion mark since Feb. 23, the day before Russia invaded the Ukraine.

Ford down

Ford’s capital structure was active on the heels of the company’s latest offering with several existing issues lower in high-volume activity.

Ford Motor Credit Co.’s short-duration 3.096% senior notes due May 4, 2023 were off about 3/8 point.

The notes were changing hands at 99 3/8 heading into the market close, according to a market source.

The yield on the notes was 3.674%.

There was $20 million in reported volume.

Ford’s 3 5/8% notes due 2031 fell 1 point to close the day at 90 with the yield now 4.99%.

The 3¼% notes due 2032 were largely unchanged at 88¼ with a yield of 4¾%.

There was $15 million in reported volume.

Ford’s latest offering looked cheap compared to its outstanding issues and sparked selling in the capital structure with holders most likely switching into the new paper.

Embecta sinks

Embecta’s 5% senior secured notes due 2030 sank on the heels of the company’s latest offering, which came significantly cheaper than its current paper.

The 5% notes fell almost 4 points to a 93-handle.

They were changing hands in the 93 to 93½ context heading into the market close with a yield just north of 6%, a source said.

There was $12 million in reported volume.

Embecta priced a $500 million issue of the 5% senior notes at par in late January.

Proceeds from both offerings are being used to fund the spinoff of the health care technology company from Becton, Dickinson and Co.

Carnival down again

Carnival’s 6% senior notes due 2029 continued their downward trajectory in high-volume activity on Wednesday with the notes shedding another 1½ points.

The notes were wrapped around 91 heading into the market close after ending Tuesday’s session on a 92-handle.

They remained active with about $20 million in reported volume.

Carnival’s senior notes have been squeezed by rising crude oil futures as investors worry about the impact of increased fuel costs on the company’s margins, a source said.

Crude oil futures again surged on Wednesday as the European Union weighs banning Russian oil.

West Texas Intermediate crude oil futures jumped to $114.93, an increase of $5.66 or 5.18%; Brent crude oil jumped to $121.30, an increase of $5.82 or 5.04%.

$721 million Tuesday outflows

The dedicated high-yield bond funds sustained $721 million of net outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Those follow the $2.7 billion of net outflows on Monday, the source added.

Indexes

The KDP High Yield Daily index shaved off 1 point to close the day at 61.31; however, the yield remained flush with Tuesday’s close at 5.61%.

The index fell 22 points on Tuesday and 11 points on Monday.

The CDX High Yield 30 index sank 43 basis points to close Wednesday at 105.41.

The index rose 44 bps on Tuesday after falling 37 bps on Monday.

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