Patagonia discount deepens, Uber, RIG gain post-earnings; Avaya rebound gains steam

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 2 – While the domestic high-yield primary market remained dormant on Tuesday, news surfaced on Patagonia Holdco LLC’s $500 million offering of seven-year non-call-three senior secured first-lien notes (B1/B+).

The deal was heard to be experiencing some pushback with the discount on the notes deepening.

Meanwhile, it was a mixed bag in the secondary space on Tuesday with the CDX index down ½ point but the cash bond market largely unchanged after the market’s strong post-Fed induced rally.

While the market was flat to down, ETFs continued to circulate Offers-Wanted-In-Competition lists as strong inflows continued, sources said.

Earnings remained in focus as market players attempt to gage the state of the economy and the future direction of the market.

While a dialing back of rate hike expectations drove a strong rally in risk assets over the past few sessions, the yield curve continues to sound a recession alarm.

Earnings, alongside other economic data, have continued to come in mixed with some credits boosted by large earnings beats while others have tanked.

Uber Technologies, Inc.’s capital structure was on the rise after the ride-sharing company posted record revenue in the second-quarter.

Transocean Inc.’s capital structure also rallied after a strong earnings beat.

Avaya Holdings Corp.’s 6 1/8% senior notes due 2028 (B3/CCC) continued to rebound strongly after plummeting into distressed territory last Friday as the market awaits the company’s earnings.

Deep discount

In an otherwise quiet session in Tuesday's high-yield primary market there was news on $1.3 billion of debt financing offers in the market supporting Stonepeak's $2.7 billion acquisition of Lumen Technologies' Latin American operations, according to market sources.

Those offerings were pitched to bond and bank loan investors in the early part of the last week in July, and have clearly been struggling, sources say.

With the bridge loan supporting the $2.7 billion acquisition now having funded, dealers are keen to syndicate the debt, which is in the market from issuing entity Patagonia Holdco, and are steepening discounts.

The OID on an $800 million term loan swooped to 82 from 90, with commitments due at noon ET on Wednesday.

And although official talk on the $500 million offering of seven-year non-call-three senior secured first-lien notes (B1/B+) was pending at press time the market anticipates a 7½% coupon with an OID in the low 80s, down from earlier price guidance in the 86 area, sources said on Tuesday.

Notwithstanding the deal's emerging markets cache there are high-yield investors paying attention, a source said on Tuesday.

Uber gains

Uber’s capital structure was making strong gains on Tuesday after the ride-sharing company bested expectations to post record revenue in the second-quarter.

The company’s senior notes were up 1 to 2 points.

The 8% senior notes due 2026 were the most active in the capital structure.

The notes rose 1¼ point to close the day wrapped around 104, a source said.

The yield on the notes was now about 6%.

There was $21 million in reported volume.

Uber’s 4½% senior notes due 2029 also gained 1¼ point to close Tuesday on a 90-handle.

The notes were changing hands in the 90 to 90½ context heading into the market close.

The 7½% senior notes due 2027 were also up 1¼ points with the notes changing hands in the 102½ to 103 context heading into the market close.

Uber defied expectations with its second-quarter earnings to report record revenue of $8.1 billion, more than double its revenue year-over-year.

Transocean in focus

Transocean’s senior notes were in focus on Tuesday with the offshore drilling contractor making strong gains after a large earnings beat.

The company’s senior notes jumped 1½ to 8 points in heavy volume.

Transocean’s 11½% senior notes due 2027 (Caa3/CCC) gained 1¾ points to close the day at 99¼ with the yield about 11¾%.

There was $30 million in reported volume, making the notes the most actively traded issue during Tuesday’s session.

The 7½% senior notes due 2026 (Ca/CCC) jumped 7½ points to 79 with the yield now just north of 15½%.

There was $11.5 million in reported volume.

Transocean’s 8% senior notes due 2027 gains 6¼ points to close the day at 76 with the yield 15 5/8%.

There was $8 million in reported volume.

Transocean’s senior notes jumped after the company reported a large earnings beat and an amendment to its credit facility that pushed out its maturity, a source said.

Transocean reported adjusted EBITDA of $245 million, a 33% increase from the previous quarter.

The company also announced that it amended its credit facility due June 22, 2023 to push out the maturity to June 22, 2025.

Avaya rebound gains steam

The rebound in Avaya’s 6 1/8% senior notes due 2028 gained steam on Tuesday with the notes jumping another 6¾ points in active trading.

The notes closed Tuesday at 56¾ with the yield now just north of 18%, a source said.

The notes were among the top traded issues of Tuesday’s session with $25 million in reported volume.

There were OWIC lists circulating the market that included Avaya, a source said.

Avaya’s senior notes have gained about 10 points over the past two sessions after plummeting more than 20 points last Friday.

The notes plummeted after the technology company released preliminary earnings results with downwardly revised guidance that reinitiated bankruptcy fears, sources said.

However, the notes may have hit oversold levels with bankruptcy concerns overblown, a source said.

Avaya is slated to report earnings on Aug. 9.

$680 million Monday inflows

The dedicated high-yield bond funds saw $680 million of daily net inflows on Monday, according to a market source

High-yield ETFs saw $515 million of inflows on the day.

Actively managed high-yield funds saw $165 million of inflows on Monday.

The combined funds are tracking a hefty $2.3 billion of net inflows for the week that will conclude at Wednesday's close, the source said.

In the most recent full week reported (to the July 27 close) the combined funds reported $4.83 billion of net inflows, the biggest weekly inflows since June 2020, according to the market source.

Indexes

The KDP High Yield Daily index fell 13 points to close Tuesday at 57.09 with the yield now 6.52%.

The index gained 8 points on Monday.

The ICE BofAML US High Yield index gained 7 bps with the year-to-date return now negative 8.582%.

The index rose 22.2 bps on Monday.

The CDX High Yield 30 index fell 42 bps to close Tuesday at 100.46.

The index was down 27 bps on Monday.

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