IAA on tap; Carvana to price add-on; Sprint gains on merger news; Berry Global tranches mixed

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 20 – The domestic high-yield primary market remained active on Monday despite the volatility that continued to roil equity markets.

While no deals priced during Monday’s session, the forward calendar continued to grow.

Carvana Co. plans to price a $250 million add-on to its 8 7/8% senior notes due Oct. 1, 2023 (expected ratings Caa2/CCC+) on Tuesday.

IAA, Inc. (Insurance Auto Auctions, Inc.) is in the market with a $400 million offering of eight-year senior notes, which is expected to price on Wednesday.

Obsidian Energy Ltd. announced it has engaged Pareto Securities to arrange meetings with fixed income investors ahead of a potential bond deal.

The European primary market also saw some activity with Novem Group GmbH planning to start a roadshow on Tuesday for a €375 million offering of five-year senior secured floating-rate notes (Ba3/B+).

Meanwhile, the secondary space was largely unchanged on Monday and was holding up well amid the sell-off in equity markets as tech companies begin to shut down the supply chain to Huawei in compliance with the Trump administration’s ban.

Sprint Corp.’s junk bonds were in focus and posting large gains as the market expressed optimism about its merger with T-Mobile despite mixed headlines.

Berry Global Group, Inc.’s recently priced tranches were mixed in high-volume activity with the second priority notes continuing to post gains while the first priority notes hovered at par.

American Airlines Group Inc.’s 5% senior notes due 2022 (B1/BB-) were slightly weaker in active trading on Monday.

Carvana tapping 2023 notes

Carvana plans to shop a $250 million add-on to its 8 7/8% senior notes due Oct. 1, 2023 (expected ratings Caa2/CCC+) on a Tuesday investor conference call.

The deal is expected to price Tuesday afternoon.

Wells Fargo is the left bookrunner.

The Tempe, Ariz.-based eCommerce used car platform operator plans to use the proceeds for general corporate purposes.

IAA dividend deal

IAA (Insurance Auto Auctions, Inc.) is in the market with a $400 million offering of eight-year senior notes related to KAR Auction Services Inc.'s spinoff of its salvage automobile auction business.

Initial price talk is in the 6% area, a trader said.

The offer is set to price Wednesday.

JP Morgan, BofA Securities, Barclays, Goldman Sachs and Morgan Stanley are the joint bookrunners.

The notes come with three years of call protection.

Proceeds, together with proceeds from an anticipated senior secured credit facility, will be used to pay a special dividend to KAR Auction Services, related to KAR's spinoff of IAA and to pay fees related to the spinoff.

Obsidian Energy five-year deal

Canadian oil and gas company Obsidian Energy said that it has engaged Pareto Securities to arrange meetings with fixed income investors ahead of a potential bond deal.

A $100 million offering of five-year senior notes may follow, pending market conditions.

Obsidian Energy would use the proceeds to refinance $48 million of secured notes maturing from 2020 to 2025, and for general corporate purposes.

Novem high yield debut

In the European primary market, Germany's Novem Group plans to start a roadshow on Tuesday for a €375 million offering of five-year senior secured floating-rate notes (Ba3/B+).

The company makes its debut in the high-yield bond market with this offering.

Initial pricing indications have the notes coming with a spread to Euribor in the 500 basis points area.

The debt refinancing deal is expected to price before the end of the May 20 week.

JPMorgan is leading the offer.

Sprint gains

Sprint’s junk bonds were in focus on Monday and posting significant gains as the market expressed optimism about the prospects of its merger with T-Mobile despite mixed headlines.

The entire capital structure posted gains between 3 and 7 points.

Sprint’s 7 7/8% notes due 2023 were “all over the place,” in high-volume activity on Monday, a market source said.

The notes traded in a range of 105½ to 108¾ on Monday.

They were changing hands at 107¼ in the late afternoon on Monday, about a 3-point gain from their closing price on Friday.

More than $80 million of the bonds were on the tape by the late afternoon.

Sprint’s 6 7/8% senior notes due 2028 gained 6 points to change hands around 102 5/8 in the late afternoon on Monday.

More than $69 million of the bonds were in play.

The 8¾% notes were up more than 7 points to 114 with $66 million of the bonds on the tape.

The 7 1/8% senior notes due 2024 were up 3½ points to 104 with $65 million in reported volume.

The notes were posting gains despite mixed headlines and statements from government agencies regarding the Sprint/T-Mobile merger.

Sprint’s junk bonds initially skyrocketed on Monday after news broke that the merger received support from the Federal Communications Commission’s chairman.

The notes came in later in the afternoon as media reports circulated the Department of Justice may attempt to block the merger.

Despite the conflicting headlines and messages from government agencies, the market was optimistic the merger would be approved, sources said.

While Sprint’s senior notes were in focus and making large gains on the merger news, T-Mobile’s junk bonds were largely flat, sources said.

Sprint is a weaker credit and needs the merger to go through more than T-Mobile, a market source said.

Berry mixed

Berry Global’s recently priced tranches continued to put in a mixed performance in the secondary space with the second priority notes posting gains while the first priority notes hovered around par.

The 4 7/8% senior notes due 2026 were changing hands between 99 7/8 and par 1/8 on Monday with most prints just north of par, a market source said.

More than $131 million of the bonds were on the tape by the late afternoon.

The 5 5/8% senior notes due 2027 were up another ½ point and were poised to close the day at par 7/8, according to a market source.

More than $69 million of the bonds were on the tape by the late afternoon.

Berry Global priced a downsized $1.75 billion two-tranche offering on Friday.

The offering consisted of a downsized $1.25 billion tranche of the 4 7/8% first priority notes, which priced at par, and a downsized $500 million tranche of the 5 5/8% notes, which also priced at par.

The initial size of the deal was $3 billion.

However, $1.25 billion in proceeds was shifted to a concurrent term loan.

American Airlines weakens

American Airlines’ 5% senior notes due 2022 were showing signs of weakening in the secondary space on Monday.

The 5% notes were down ¼ point to close the day at par ¼.

The notes remained active with $15 million of the bonds on the tape by the late afternoon.

The 5% notes traded up to par ½ after breaking for trade, which sources noted was a healthy premium for notes with such a short duration.

American Airlines priced a $750 million issue of the 5% notes at par on May 16.

Friday inflows

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

High-yield ETFs saw $57 million of inflows on the day.

Actively managed high-yield funds saw $25 million of inflows.

Indexes down

Indexes opened the week with losses after all posted cumulative losses on the week last week.

The KDP High Yield Daily index slid 3 basis points to close Monday at 69.95 with the yield now 5.85%.

The index posted a cumulative loss of 10 bps on the week.

The ICE BofAML US High Yield index shaved off 1.3 bps with the year-to-date return now 8.234%.

The index saw a cumulative loss of 6.1 bps on the week last week.

The CDX High Yield 30 index dropped 20 bps to close Monday at 106.18.

The index posted a cumulative loss of 126 bps on the week.

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