Secondary heavy in light volume; VistaJet sinks lower; Gap under pressure; Carvana reverses

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 22 – The high-yield new issue market sat idle on Friday, which marked another brutal day for risk assets with investors again unnerved by Federal Reserve chair Jerome Powell’s confirmation of an aggressive rate hike schedule during a Thursday speech.

The primary market was able to clear two deals despite market turbulence over the past week.

While the forward calendar was empty heading into the weekend, the market anticipates news early next week of a sizable debt offering from Carvana Co.

The high-yield secondary space fell ½ to 5/8 point with the ICE BofAML US High Yield index’s year-to-date returns breaking below negative 7%.

However, trading activity in the space remained thin.

While there was ETF selling amid continued outflows, opportunistic buyers were entering the space with real money accounts circulating offers-wanted-in-competition lists, a source said.

VistaJet’s (XO Management Holding, Inc./VistaJet Malta Finance plc) 7 7/8% senior notes due 2027 (Caa1/B-/BB-), one of two deals to price over the past week, sank further below their discounted issue price.

Outside of recent issues, Gap, Inc.’s capital structure was under pressure after the clothing retailer lowered its forward guidance and announced the departure of Old Navy’s chief executive officer.

After leading losses during Thursday’s session, Carvana’s senior notes were bouncing off their lows in high-volume activity as the market awaits news of a new offering from the used car e-commerce company.

Friday’s primary

The high-yield new issue market sat idle on Friday as a fresh round of interest rate scares and concerns that far-right French presidential candidate Marine Le Pen could win an upset victory over incumbent Emmanuel Macron in Sunday's election sent equities tumbling around the globe.

The Dow Jones industrial average was down 3% heading into Friday's close.

The past week saw just two issuers raise a combined total of $892 million, with Vermilion Energy Inc. pricing a tranche of 6 7/8% senior notes due May 2030 on Tuesday, and VistaJet (XO Management Holding, Inc./VistaJet Malta Finance plc) pricing 7 7/8% senior notes due May 2027 on Wednesday.

The market anticipates news early in the week ahead on sizable debt offerings related to Carvana’s $2.2 billion acquisition of the auction business of Adesa, Inc. from KAR Auction Services, Inc.

Feelers are heard to be out on a proposed $1 billion offering of unsecured notes with initial guidance in the 9½% area, a sellside source said.

VistaJet sinks

VistaJet’s recently priced 7 7/8% senior notes due 2027 sank further below their discounted issue price in active trading on Friday.

The 7 7/8% notes fell almost 2 points.

The notes were changing hands on a 96-handle heading into the market close with the notes changing hands in the 96 5/8 to 96 7/8 context, a source said.

There was $18 million in reported volume.

The notes closed the previous session on a 98-handle.

VistaJet priced an upsized $500 million, from $440 million, issue of the 7 7/8% notes at 98.986 to yield 8 1/8% on Wednesday.

The deal played to heavy demand during bookbuilding but hit the secondary space as market conditions deteriorated.

The 7 7/8% notes briefly traded above their issue price on the break but have been on a downward spiral since as investors shed risk.

Gap under pressure

Gap’s capital structure was under pressure on Friday after the company lowered its first-quarter guidance and announced the exit of subsidiary Old Navy’s chief executive officer.

The clothing retailer’s 3 7/8% senior notes due 2031 (Ba3/BB) fell 2 5/8 points to close Friday at 84, according to a market source.

The yield on the notes was 6.134%.

The notes saw heavy volume with $13 million in reported volume.

Gap’s 3 5/8% senior notes due 2029 (Ba3/BB) sank 4 points to close Friday at 83½.

There was $6 million in reported volume.

Gap issued a dire warning ahead of earnings by lowering its forward guidance to a double-digit sales decline from previous forecasts for a decline in the single digits.

The company also announced the exit of the CEO of its Old Navy division.

“Retailers are in a tough spot,” a source said.

Carvana bounces

Carvana’s senior notes were bouncing off their lows after tanking the previous session on the heels of earnings and a new debt offering.

The used car e-commerce site’s 5½% senior notes due 2027 rose ½ point to close Friday at 83½, according to a market source.

The yield on the notes was about 9¾%.

There was $14 million in reported volume.

The notes sank 2 points the previous session.

The 4 7/8% notes gained ¾ point to close Friday at 77¾ with a yield of 9%.

There was $18 million in reported volume.

While Carvana’s senior notes carried a hefty yield, they were still tight compared to the CCC index which carried a yield of about 10½%, according to a market source.

Carvana’s capital structure was under pressure following a large earnings miss and a new debt offering on Thursday.

Thursday outflows

The dedicated high-yield bond funds sustained $127 million of daily net outflows on Thursday, according to a market source.

High-yield ETFS saw $108 million of outflows on the day.

Actively managed high-yield funds sustained $19 million of outflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday afternoon report that the combined funds sustained $886 million of net outflows in the week to last Wednesday's close, according to Refinitiv Lipper.

It was the second consecutive negative weekly cash flow trailing the previous week's $4 billion outflow, according to the market source.

Indexes

The KDP High Yield Daily index was down 31 points to close Friday at 59.29 with the yield now 6.19%.

The index fell 19 points on Thursday, gained 4 points on Wednesday and fell 15 points on Tuesday and 20 points on Monday.

The index posted a cumulative loss of 81 points on the week.

The ICE BofAML US High Yield index sank 52.8 basis points on Friday with the year-to-date return now 7.154%.

The index fell 17.2 bps on Thursday, rose 17.7 bps on Wednesday and fell 12.6 bps on Tuesday and 18.8 bps on Monday.

The index posted a cumulative loss of 83.7 bps on the week.

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