Patagonia Holdco plans roadshow; Carvana notes up; Gap paper improves

By Cristal Cody and Paul A. Harris

Tupelo, Miss., July 18 – No dollar-denominated high-yield bond deals priced on Monday, extending to the junk bond market's summer issuance drought to eight sessions. (The last deal to price was Neogen on July 6.)

However there was news on Monday.

Patagonia Holdco LLC plans to run a roadshow for a $500 million offering of seven-year senior secured first-lien notes (S&P: B+) supporting the buyout of Lumen Technologies' Latin American operations by Stonepeak.

Initial guidance indicates that the issuer is attempting to place paper that would pay a 7½% coupon and contemplates an original issue discount of 86.

The surviving entity will be a Stonepeak portfolio company headquartered in the U.S.

Patagonia HoldCo takes a place on a forward calendar that features just one other deal.

Camelot Return Merger Sub Inc. is offering $600 million of six-year non-call-two senior secured notes (B2/B) backing the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice.

Initial guidance has those notes coming with an 8¾% coupon at a discount to yield 10½%, sources say.

The roadshow wraps up Tuesday, with pricing expected to follow later the same day.

Meantime the market continues to await the announcement of a deal backing Apollo Global Management, Inc's buyout of Tenneco, Inc.

Debt financing for the buyout began being telegraphed to the market shortly after the Independence Day holiday weekend, sources say.

Soon after the conclusion of the Independence Day holiday weekend dealers began pre-marketing as much as $3 billion of bonds from Pegasus Merger Co., an affiliate of Apollo, according to an investor who participated in a call late in the July 4 week.

Early pricing conversations were as follows, according to a portfolio manager: $2 billion unsecured notes in the context of 9% and $1 billion of unsecured notes at 250 basis points to 300 bps behind the secured notes.

Sources have characterized the Tenneco deal as being “close at hand” since early in the month.

Meanwhile, junk retail paper was on the mend in active trading over the session.

Carvana Co.’s paper went out about ¾ point to more than 1 point higher on the day.

Gap Inc.’s 3 7/8% senior notes due 2031 (Ba3/BB) clawed back 2¼ points in active trading Monday after ending last week down 4½ points.

Gap’s credit default swaps spreads were more than 100 basis points wider in the prior week.

Carvana higher

Carvana’s 10¼% senior notes due 2030 (Caa2/CCC+) moved up to a handle in the low 80s Monday after ending the previous week wrapped around a 78 handle, a source said.

The notes rose about ¾ point to 80¼ bid.

The issue finished last week down 4 points.

Carvana’s 5½% senior notes due 2027 (Caa2/CCC+) also climbed about 1½ points in strong trading action Monday.

The Phoenix-based online car retailer’s notes were quoted at the 64 bid range.

Gap notes up

Gap’s 3 7/8% senior notes due 2031 (Ba3/BB) jumped 2¼ points to 69¾ bid in active trading Monday, a source said.

The notes went out Friday 4½ points lower on the week.

The San Francisco-based clothing retailer’s CDS spreads widened more than 130 bps in the prior week ended Wednesday to 770 bps, according to a market source.

Indexes

The KDP High Yield Daily index added 33 points on Monday to end at 55.62 with a yield of 7.13%.

The index finished the prior week with a cumulative gain of 16 points.

The CDX High Yield 30 index fell 14 bps to 98.68.

The CDX index posted a cumulative loss of 43 bps last week.

Friday fund flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Friday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $265 million of outflows on the day.

However, high-yield ETFs were positive on Friday, posting $223 million of inflows on the day, the source said.

The combined funds are tracking $448 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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