Coinbase recoups losses in junkland; MicroStrategy on the rise; Twitter falls

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 13 – While the domestic high-yield primary market remained dormant on Friday with the forward calendar empty, the European market remained active.

Loarre Investments Sarl priced €850 million of seven-year senior secured notes (Ba3//BB) in two tranches.

Meanwhile, the secondary space firmed on Friday after a brutal week with the market up about 1/8 point.

However, returns remain below the negative 10% threshold, marking the worst performance for the asset class year to date in history, according to a BofA Global Research report.

While the market has taken a beating in 2022, inflation break-evens are starting to come in and current valuations are beginning to look attractive.

The market has the potential to snap back to credit spreads of 400 basis points, which would generate returns of 7% to 8% from current levels, according to the report.

A credit spread of 500 bps and an 8% yield would be an attractive entry point with spreads unlikely to widen beyond 650 bps even in a recession scenario, according to the report.

Dip-buyers were already starting to make an appearance with several badly battered junk bonds lifted.

Notes with exposure to Bitcoin were on the rise on Friday as the crypto-currency continued to rebound after a flash crash on Wednesday drove it down nearly 10%.

Coinbase Global, Inc.'s senior notes (Ba1/BB+) staged a remarkable recovery on Friday with the notes paring their steep losses from earlier in the week.

MicroStrategy Inc.’s 6 1/8% senior notes due 2028 (Ba3/B-) also outperformed on Friday with the notes up more than 5 points after hitting an all-time low the previous session.

While Friday marked a strong day for risk assets, Twitter, Inc.’s 5% senior notes due 2030 (Ba2/BB+) were trading down with the social media company’s capital structure taking a hit after Elon Musk announced his takeover bid was on hold.

Primary eyed

Loarre Investments Sarl priced €850 million of seven-year senior secured notes (Ba3//BB) in two tranches on Friday: €500 million of 6½% fixed-rate notes that priced at 96.605 to yield 7 1/8% and €350 million of Euribor plus 500 bps floating-rate notes that priced at 97.

The deal, which came to help finance the capitalization of Spanish soccer organization La Liga by CVC Capital Partners, saw both tranches pricing in line with final talk, but wide or cheap to initial guidance (see related story in this issue).

Over the past two weeks the euro-denominated new issue market operated at twice the volume of its dollar-denominated counterpart, which is to say that during the interval in question there were two euro-denominated deals (Kepler SpA priced €345 million of senior secured floating-rate notes in support of Ardian's buyout of Biofarma SpA, on May 6), while there was only one dollar deal.

The most recent deal to clear the dollar market came from Frontier Communications Holdings, LLC which priced $1.2 billion of 8¾% first-lien secured notes due May 2030 at par on Monday – with 2¾% more coupon, and with security that is superior to the Frontier Communications 6% second-lien notes due January 2030, which priced at par last October.

The new deal came way cheap, traders said.

In the meantime, both markets saw one deal, apiece, pulled.

Bioventus Inc. withdrew a $415 offering of five-year senior notes on May 3, while Europcar Mobility Group pulled €150 million of 3% sustainability-linked senior mirror notes last Monday.

Both cited market conditions.

The active forward calendar stood empty heading into Friday's close, with no word of planned primary market activity for the week ahead, sources said.

Coinbase rebounds

Coinbase’s two tranches of senior notes staged a remarkable rebound on Friday after brushing up against distressed territory earlier in the week.

The 3 3/8% senior notes due 2028 were the top gainer of Friday’s session.

The notes added 7 points to close the day at 70, a source said.

The notes’ credit spread tightened more than 200 bps on Friday after approaching distressed levels the previous session.

Coinbase’s 3 3/8% notes were on a 75-handle before it reported earnings after the market close on Tuesday.

They fell 13 points to trade as low as 63 following a large earnings miss, a new risk factor that raised concerns about bankruptcy, and the flash crash of Bitcoin.

Coinbase’s 3 5/8% senior notes due 2031 gained 4 5/8 points on Friday.

They were changing hands in the 66½ to 67 context heading into the market close.

There was $23 million in reported volume.

The 3 5/8% notes were trading on a 72-handle heading into earnings.

While Coinbase reported a large earnings miss, the sell-off in the capital structure was also sparked by a new risk factor that warned holders the cryptocurrency the exchange holds would be considered unsecured, or the holders general unsecured creditors, in the case of bankruptcy proceedings.

However, Coinbase’s chief executive officer assured investors bankruptcy was nowhere in sight and the risk factor was noted due to SEC regulation.

“People are reexamining the fundamentals,” a source said.

MicroStrategy rebounds

MicroStrategy’s 6 1/8% senior notes due 2028 also saw a strong rebound on Friday after hitting a new all-time low the previous session.

The 6 1/8% notes gained 5½ points to close the day on an 83-handle.

The notes were changing hands in the 83¼ to 83¾ context heading into the market close with a yield of about 9.8%.

There was $15 million in reported volume.

The notes traded down to a 77-handle on Thursday, their lowest level since the $500 million issue priced at par in June 2021.

The notes sank and rebounded alongside Bitcoin which saw a flash crash in overnight trading on Wednesday but has since turned positive.

Bitcoin briefly crossed above the $30,000 threshold during U.S. equity market hours and was changing hands at $29,826.10, an increase of 3.06%, shortly after 5 p.m. ET.

MicroStrategy invests heavily in Bitcoin with proceeds from the sale of the 6 1/8% notes used to purchase Bitcoin.

Twitter falls

Twitter’s 5% senior notes due 2030 continued to give back its takeover gains as Elon Musk announced his planned takeover of the company is on hold.

The 5% notes fell 2½ points to close the day at 98½, according to a market source.

There was $24 million in reported volume.

The 5% notes have nearly given back all gains made since speculation about a Musk-Twitter takeover began in mid-April.

The 5% notes traded as high as 104 following Twitter’s late April announcement that it had agreed to Musk’s takeover proposal.

However, the notes have slowly come down as questions mount of the Musk’s $21 billion equity commitment to finance the deal.

Musk claimed he put his takeover initiative on hold until he gets more information on the number of fake accounts on the social media platform.

Fund flows

The dedicated high-yield bond funds sustained $512 million of net daily outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $316 million of outflows on the day, while actively managed high-yield funds sustained $196 million of outflows on Thursday, the source said.

News of Thursday's daily cash flows trails a Thursday report that the combined funds saw $168 million of net inflows for the week to the Wednesday, May 11 close, according to Refinitiv Lipper.

However, a breakdown of those weekly flows reveals that only the ETF cohort was positive on the week, posting $850 million of inflows during the period, the market source said.

Year-to-date cash flows of the combined funds stood at negative $33.8 billion, as of Thursday's close, the source said.

Also of note, the dedicated bank loan funds saw $598 million of net outflows for the week the May 11 close, the first negative flows that bank loans posted since mid-March, and the largest outflow from the asset class since April 2020.

The outflow from the bank loan funds included the second-largest daily outflow on record from the bank loan ETFs on Monday: $301 million (the record is the $350 million outflow posted in the week to Feb. 27, 2020), according to the market source who added that the Monday outflow from the ETFs was followed by broad-based withdrawals from actively managed bank loan funds.

Indexes

The KDP High Yield Daily index gained 14 points to close Friday at 57.2 with the yield now 6.79%.

The index was down 24 points on Thursday, 7 points on Wednesday, rose 7 points on Tuesday and fell 52 points on Monday.

The index posted a cumulative loss of 62 points on the week.

The ICE BofAML US High Yield index gained 15.2 bps with the year-to-date return now negative 10.177%.

The index fell 39.4 bps on Thursday and 3.2 bps on Wednesday, gained 5.2 bps on Tuesday and fell 80.5 bps on Monday.

The index posted a cumulative loss of 92.7 bps on the week.

The CDX High Yield 30 index gained 34 bps to close Friday at 100.65.

The index was down 10 bps on Thursday and 13 bps on Wednesday, gained 41 bps on Tuesday and fell 70 bps on Monday.

The index posted a cumulative loss of 18 bps on the week.

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