Iris deal looms alone; secondary returns plunge past negative 12%; Coinbase tanks; Carvana on an 80-handle

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 13 – Capital markets’ volatility sidelined the high-yield new-issue market on Monday, as cash junk bonds dropped a massive 3 1/8 points on the day, and the yield of the 10-year Treasury soared by 21 basis points on the session to end Monday at 3.362%, a trader said.

One deal remains on the active forward calendar.

Iris Holdings Inc. is expected to wrap up a roadshow early this week for its $400 million offering of 6.5-year senior notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group Inc. by Clearlake Capital Group LP.

Initial guidance had the notes coming with a 10% coupon at an issue price in the low 90s with an all-in yield in the high 11% area to the low 12% area.

That early guidance, however, has likely been overtaken by events, as the deal was heard to be hitting headwinds late last week, a sellside source said on Monday.

It was another brutal day in the secondary space with the market hitting fresh lows as Treasury yields jumped ahead of the Federal Reserve Open Market Committee meeting on Tuesday.

The 10-year Treasury yield shot up to a new multi-year high of 3.439% before settling at 3.364% and the 30-year mortgage rate topped 6%.

The cash bond market sank more than 2 points in the selling pressure with several indexes seeing their lowest close of the year.

The CDX High Yield 30 index fell to a 97-handle and the ICE BofAML US High Yield index plunged more than 200 bps with returns falling past negative 12%.

The ICE BofAML US High Yield index has fallen more than 400 bps in four sessions.

The market is once again pricing in a 75 bps rate increase in the coming year with Friday’s CPI report demolishing the dovish rate hike outlook that propelled the late May rally, a source said.

The overall market was in pain with rate-sensitive and low-quality credits again feeling the brunt of the sell-off.

Coinbase Global, Inc.’s senior notes (Ba1/BB+) were among the largest losers in the secondary space as Bitcoin plummeted and industry peer Celsius Network failed.

Losses in Carvana Co.’s senior notes also outpaced the broader market with its 10¼% senior notes due 2030 (Caa2/CCC) falling to an 80-handle.

Frontier Communications Holdings, LLC’s 8¾% first-lien secured notes due 2030 (B3/B/BB+), the best performing deal of 2022, gave back much of their gains during Monday’s session.

While down on Monday, the notes are one of two deals to trade at a premium to their issue price.

The remaining 95 deals to price in 2022 are under water, according to a market source.

While the high-yield market continued to see one of its worst years in recent history, there still remained some opportunistic buyers in the space.

Higher quality single B credits continued to attract buying interest, although few names were lifted as a result.

Coinbase plummets

Coinbase’s senior notes were among the worst performers of Monday’s session with both tranches hitting new all-time lows as rising rates pressured low coupon names, the rout in Bitcoin intensified and industry peer Celsius Network failed.

Coinbase’s 3 5/8% senior notes due 2031 sank 5½ points in heavy volume to a 58-handle.

The notes were changing hands in the 58¼ to 58¾ context throughout the session with the yield about 10 7/8%.

There was $24 million in reported volume.

The crypto-currency exchange’s 3 3/8% senior notes due 2028 fell 5 points to a 65-handle.

The notes were changing hands in the 65 to 65½ context with the yield about 11¼%.

There was $12 million in reported volume.

Coinbase’s capital structure was under particular pressure as Bitcoin collapsed.

Bitcoin was changing hands at $23,171.20, a decrease of 12.74%, shortly after the close of U.S. equity markets.

The crypto meltdown accelerated on Monday after crypto lending platform Celsius Network failed and halted withdrawals from its platform.

Bitcoin had been bordering the $30,000 threshold until Friday’s CPI report.

Selling in the cryptocurrency accelerated following Celsius’ Sunday announcement with Bitcoin crashing below its $24,000 support level during Monday’s session.

Coinbase’s senior notes have been particularly volatile since the company’s May 10 earnings when it announced surprise losses and included a new risk warning that mentioned bankruptcy.

The earnings sparked investor concern over the company’s fundamentals.

Carvana’s new low

Carvana ranked among the weak credits hard hit by the market downturn with the company’s 10¼% senior notes due 2030 hitting a fresh low in heavy volume.

The 10¼% notes sank another 3 points with the notes falling to an 80 handle. They were changing hands in the 80¼ to 80¾ context in high-volume activity with the yield just shy of 14½%.

There was $24 million in reported volume.

The $3.28 billion issue priced at par on April 27.

The used car e-commerce company’s 5 7/8% senior notes due 2028 were also taking a hit.

The notes fell 5½ points to close the day at 61½ with a yield of 15¾%, according to a market source.

There was $9 million in reported volume.

The company has a high cash burn rate, weak earnings and laid off 2,500 workers in early May, citing a “recession” in used car sales.

Frontier down

Frontier’s 8¾% first-lien secured notes due 2030, the best performing deal of 2022, gave back much of their premium in active trading on Monday.

The 8¾% notes fell 2 points and were wrapped around 101 heading into the market close, a source said.

There was $16 million in reported volume.

The notes are one of two deals to still remain at a premium to their issue price with the remaining 95 deals to price in 2022 under water.

Frontier priced a $1.2 billion issue of the 8¾% notes at par on May 9.

Mineral Resources Ltd.’s 8% senior notes due 2027 and 8½% senior notes due 2030, the only other two-tranche offering to hold above issue price, were holding on a 101-handle on Monday.

Indexes

The KDP High Yield Daily index sank 143 points to close Monday at 54.93 with a yield of 7.47%.

The index sank 148 points on the week last week.

The ICE BofAML US High Yield index plummeted 212 bps with the year-to-date return now 12.3981%.

The index posted a cumulative loss of 216.7 bps on the week last week.

The CDX High Yield 30 index sank 162 bps to close Monday at 97.17.

The index posted a cumulative loss of 232 bps on the week last week.

ETFs see $758 million Friday outflows

High-yield ETFs sustained big daily outflows of $758 million on Friday, according to a market source.

Actively managed high-yield funds were positive on the day, posting $176 million of inflows on Friday, the source said.

The combined funds are tracking $981 million of net outflows for the week that will conclude with Wednesday's close.

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