Market whipsaws post-CPI; Carnival volatile; Albertsons gains; junk funds lose $713 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 13 – The dollar-denominated primary market watched from the sidelines as the global capital markets took a roller coaster ride.

However, there was news in the euro-denominated primary market and Odeon Finco plc/AMC Entertainment Holdings, Inc. is on deck with its $400 million offering of five-year senior secured notes (B).

Meanwhile, volatility rocked the secondary space on Thursday as the market digested the latest Consumer Price Index report.

A green open gave way to heavy selling as the report came in hotter-than-expected and the market fully priced in a 75 basis points rate hike.

However, the market ripped off its lows after the close of European markets with the cash bond market ending the day largely unchanged.

While the high-yield market fought back from its lows, it lagged other asset classes and did not fully participate in the rally that drove up equity indexes more than 2%, which was largely algo-driven, a source said.

Carnival Corp.’s capital structure embodied the volatility of Thursday’s session with several tranches hitting all-time lows before bouncing back to close the day in positive territory.

DISH DBS Corp.’s capital structure continued to attract attention as the satellite broadcaster mulls divesting its recently acquired wireless network.

While DISH’s senior notes continued to trade in volume, there was little movement in price, a source said.

Albertsons Cos., Inc.’s senior notes were on the rise following news reports that a merger agreement with rival grocery store chain Kroger was in the works.

Meanwhile, outflows resumed with high-yield mutual and exchange-traded funds losing $713 million in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

Funds had their first inflow the previous week after a six-week stint of outflows where a cumulative $15.8 billion left the space.

Primary activity

Stocks opened slightly firmer ahead of a hotter-than-expected CPI report, Thursday morning, then dropped 3% upon the release of that report, then retraced that lost ground and plowed as much as 3% higher in intraday trading.

The high-yield bond market also saw swings, but ended the day unchanged to perhaps ¼ point better on ultra-thin trading volumes, a New York sellside source said.

There was news in the euro-denominated primary market.

Fiber Bidco SpA upsized its two-part offering of five-year senior secured notes (B2/B/BB-) to €1.025 billion from €875 million.

The deal, backing the buyout of Italian specialty paper manufacturer Fedrigoni by Bain Capital and BC Partners, is expected to feature €300 million to €350 million of fixed-rate notes guided with a yield of 11¾% to 12% including an OID, and a €675 million to €725 million tranche of floating-rate notes guided with a 600 basis points spread to Euribor at a discount in the 90 area.

The roadshow was scheduled to wrap up on Thursday.

In the dollar new issue market, the Odeon Finco plc/AMC Entertainment Holdings, Inc. $400 million offering of five-year senior secured notes is expected to price on Friday.

The deal is in the market with a 12¾% coupon at 95 to 96 to yield around 14%.

News of the movie theater operator's new debt refinancing deal sent AMC's 10% second-lien notes due 2026 tumbling four points to 58 on Wednesday, the day the new deal was announced.

The 10% paper fell further, to 56, post-CPI, on Thursday – among the morning's biggest losers – a trader said.

In the ensuing rally that heated up late Thursday morning, the AMC 10% notes traded back up to as high as 59, a sellside source said.

Holders of the 10% notes have become restive at the likelihood of being layered into a more expensive debt structure, market sources say.

There was also news on Thursday of a dollar-denominated Nordic transaction.

Bluewater Holding BV mandated DNB Markets and Pareto Securities to arrange meetings with fixed-income investors starting on Friday.

A $240 million offering of four-year senior notes may follow.

Carnival mixed

Carnival’s senior notes dominated the tape on Thursday with the notes embodying the volatility of Thursday’s session.

Several tranches hit all-time lows in the sell-off early in the session but bounced off their lows to close the day with nominal gains.

Carnival’s 6% senior notes due 2029 (B3/B) were among the most actively traded issue in the secondary space.

The notes fell 2 points early in the session to trade in the 61½ to 62 context, a source said.

However, they jumped midway through the session with the notes up ¼ point to close the day just shy of 64, a source said.

They were trading with a yield of 14¾%.

There was $31 million in reported volume.

Carnival’s 5¾% senior notes due 2027 followed a similar trajectory with the notes down 1½ points early in the session.

The notes broke below a 64-handle before skyrocketing back to a 65-handle and closing the day up ½ point in the 65½ to 65¾ context.

The yield on the notes was 17¼%.

There was $22 million in reported volume.

Carnival’s 9 7/8% notes due 2027 fought off losses to close the day largely unchanged at 93½ with the yield 11 5/8%.

However, Carnival’s 10½% senior notes due 2030 were unable to reclaim their former level after falling 2 points in early trade.

The 10½% notes traded down to a 71-handle early in the session.

While they pared their losses amid the market rally, they still ended the day lower with the notes changing hands at 72¼ with a yield just north of 17% heading into the close.

There was $21 million in reported volume.

DISH active

DISH’s senior notes continued to garner attention as the company mulls divesting its recently acquired wireless network.

DISH’s 5¼% senior notes due 2026 saw heavy volume with the notes trading in a tight range despite the volatility in the broader market.

The 5¼% notes were largely unchanged at 81¼ bid, 82 offered, sources said.

There was $25 million in reported volume.

However, other tranches were seen up ¼ to ½ point in light volume, sources said.

DISH was in focus on news the satellite broadcaster was considering selling its wireless network to a special acquisition vehicle backed by DISH co-founder and chair Charlie Ergen.

Albertsons gains

Albertsons’ senior notes were on the rise on Thursday with topical news lifting the notes even as the broader market sank early in the session.

The grocery store chain’s 3½% senior notes due 2029 rose 3½ points to close the day at 83½, a source said.

The 5 7/8% senior notes due 2028 also gained 3½ points to close the day at 95¼.

Both tranches saw about $8 million in reported volume.

The notes were on the rise following news the grocer was in merger talks with rival Kroger with a formal announcement imminent, Bloomberg reported.

Albertsons entered into a strategic review process earlier in the year.

$472 million Wednesday outflows

The dedicated high-yield bond funds sustained $472 million of net daily outflows on Wednesday, according to a market source.

High-yield ETFs saw $374 million of outflows on the day.

Actively managed high-yield funds sustained $98 million of outflows on Wednesday, according to the source.

News of Wednesday's daily flows was followed by a Thursday afternoon report that the combined high-yield bond funds sustained $713 million of net outflows in the week to Wednesday's close, according to fund-tracker Refinitiv Lipper.

That migration of cash away from the junk funds was dwarfed, however, by the $4.36 billion of weekly outflows sustained by the investment-grade bond funds.

Ongoing volatility in risk-free assets, with Treasury secretary Janet Yellen lamenting a lack of liquidity in the Treasury market on Thursday, is making it exceedingly difficulty to price risk assets, and is taking an even bigger toll on high-grade corporate bonds, a junk bond trader said.

Indexes

The KDP High Yield Daily index fell 11 points to close Thursday at 51.09 with the yield 8.08%.

The index was down 7 points on Wednesday and 44 points on Tuesday.

The ICE BofAML US High Yield index was down 21.7 basis points with the year-to-date return now 14.453%.

The index was down 8 bps on Wednesday and 77 bps on Tuesday.

The CDX High Yield 30 index was up 43 bps to close Thursday at 96.85.

The index inched up 6 bps on Wednesday and was down 45 bps on Tuesday.

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