Morning Commentary: Junk opens ¼ point better; VistaJet 7 7/8% notes below issue price

By Paul A. Harris

Portland, Ore., April 21 – The high-yield bond market opened ¼ point better on Thursday and continued to hold in around that level at mid-morning, sources said.

With the Dow Jones industrial average up 0.6% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.15%, or 12 cents, at $80.17.

The new VistaJet (XO Management Holding, Inc./VistaJet Malta Finance plc) 7 7/8% senior notes due May 2027 (Caa1/B-/BB-) were 1/8 point below their new issue price, quoted at 98¾ bid, 99¼ offered at mid-morning, after opening the Thursday session above the issue price, a portfolio manager said.

Shortly thereafter, a sellside source spotted the new VistaJet 7 7/8% notes at 98 5/8 bid, 99 1/8 offered.

The upsized $500 million issue (from $440 million) priced at 98.986 to yield 8 1/8% on Wednesday, playing to $1.2 billion of demand.

The recently minted Vermilion Energy Inc. 6 7/8% senior notes due May 2030 (B3/BB-/BB-) were trading above their new issue price on Thursday morning at 99¼ bid, 99¾ offered.

The $400 million deal, which came at 99.241 to yield 7% on Tuesday, was heard to have been wrapped around par on Wednesday.

As the primary market idled on Thursday morning, with no deals on the active forward calendar, news along the new issue wire held that Carvana Co. could show up next week with up to $2.275 billion of senior notes due 2030, the portfolio manager said.

The offering is related to Carvana's planned acquisition of the U.S.-based physical auction business of Adesa, Inc. from KAR Auction Services, Inc., valued at $2.2 billion.

It doesn't figure to be a cakewalk for Carvana, the investor remarked, noting that acquisition financings such as Carvana and VistaJet must come to market, where rates have been on an upward trajectory, with year-to-date issuance volume a pale 30% ghost of its vigorous 2021 incarnation.

Away from prospective M&A-related borrowers, most issuers will almost surely continue to be patient, the investor said.

Carvana is also doing $1 billion of series A perpetual preferred stock and a $1 billion public offering of class A common stock, both also related to the acquisition.

The Carvana news caused the prices of its existing bonds to erode, according to the sellside source, who was seeing them ¼ of a point to 7/8 of a point lower on the morning.

Funds outflows

The dedicated high-yield bond funds sustained $396 million of net daily outflows on Wednesday, according to a market source.

High-yield ETFs saw $228 million of outflows on the day.

Actively managed high-yield funds sustained $168 million of outflows on Wednesday, the source said.

The combined funds are tracking $925 million of net outflows for the week to Wednesday's close, as the market awaits a weekly report on the cash flows of the various asset classes, expected later Thursday from Refinitiv Lipper, the market source said.

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